By Alden Bentley
(Reuters) – A look at the day ahead in Asian markets.
Wednesday will bring prompt tests of the just-released International Monetary Fund upgrades of U.S. and Chinese growth outlooks that could should set the tone for markets, starting with Asia on Wednesday.
The IMF on Tuesday adjusted its forecast for 2024 global growth upward amid a stabilized inflation outlook, and said a “soft landing” was in sight. While IMF’s World Economic Outlook may not be the biggest market mover, it threw down a marker for the two most important economies, raising the GDP growth rate outlook for China to 4.6% from 4.1% and the U.S. to 2.1% from 1.5%.
Chinese official manufacturing PMIs for January on Wednesday will give insight as to how on-target the IMF might be, and can help set the tone for local stock markets and beyond. In December the purchasing manager’s index fell to 49.0 from 49.4, below the 50.0 expansion/contraction threshold.
Industrial output reports are also due from Japan and South Korea.
Earlier in Asia, regional shares slumped amid deepening worries about the Chinese real-estate sector after developer group China Evergrande was ordered to be liquidated on Monday.
China and Hong Kong stocks dragged MSCI’s broadest index of Asia-Pacific shares outside Japan down about 0.9%. Japan’s Nikkei was up 0.11%, set for a nearly 8% gain for the month.
Speaking of soft landings, in the run up to the two-day Federal Open Market Committee meeting that kicked off Tuesday Fed policy makers have made clear they will not jeopardize one by easing too soon or too aggressively, even if inflation is showing signs of coming down. This leaves global traders on tenterhooks ahead of Wednesday’s FOMC statement, and, perhaps more importantly, the question and answer session with chair Jerome Powell afterward.
The S&P 500 struggled to stay above water Tuesday but did manage to eke out another in a series of record highs, while Treasury yields slipped and the dollar was near flat.
Fed funds futures markets indicate a near zero probability of a cut this month and in recent days have priced the easing cycle starting at the May meeting, instead of March as previously favored. At their December meeting policy makers penciled in 75 basis point of cuts this year. That median projection would be a less aggressive loosening than the market expects from the current policy rate of 5.25%-5.50%, where it has been since July.
Meanwhile the U.S. labor market looks tight, based on Labor Department job openings data released Tuesday. While the ADP employment report comes out Wednesday the main event is the January nonfarm payrolls release on Friday, which will inform the Fed’s deliberations in March as to whether markets are in for a U.S. soft landing, no landing, or, least likely from current indications, a hard one.
“For a March cut to happen you’d have to have some pretty clear communication from the Fed laying the groundwork tomorrow, but when you look at the economic data and where the labor market is, it’s hard to have a high degree of confidence that they will see the need to cut,” said Frank Rybinski, head of macro strategy at Aegon Asset Management.
Here are key developments that could provide more direction to markets on Wednesday:
— South Korea Industrial Output – December
— Japan Industrial Output – December
— China Manufacturing PMI – January
— Australia CPI – December
— U.S. ADP employment – January
— U.S. FOMC policy statement
(Reporting by Alden Bentley; additional reporting by David Randall)
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