The week ends on a positive note

After a bearish start to the week, momentum in the relief rally remained steady in Asia today, with most regional bourses extending higher ahead of the weekend. 

Japan Charts
Source: Bloomberg

Despite the gains in the later part of the week, some Asian stock indices, including Japan and China, look set to end the week in the red. On a brighter note, Singapore is expected to post its first weekly gain, after declining for the previous five weeks. Moreover, if the relief risk taking carries on in the European and US sessions, equities in those regions would also close the week higher.

Overall, it appeared that the market is cautiously optimistic about the rebound today, choosing instead to trim buy orders or square positions. China stocks remained upbeat, with the China A50 and CSI 300 making decent gains this morning.

Clearly, news of the government propping up the financial markets ahead of next Thursday’s military WW2 victory parade, had helped sentiments.

A steady yuan also added to the cheer. The authorities reportedly sold US treasuries in order to support the CNY. Meanwhile, some analysts expressed doubt that the rebound in China may sustain, citing still-elevated valuations as the main reason why general investors would not enter the market.

Australia was relatively muted today, up a mild 0.6% on the session, while Japan advanced over 2%, regaining the 19000 level. In the currency market, dollar gave up some of its overnight gains, which helped kept euro and yen steady. Commodity currencies were little changed.

Would we see a positive mood next week? The question depends partially on what we see tonight in the US as well as the Jackson Hole symposium over the weekend, particularly with Fed Vice-Chair Stanley Fischer’s speech on Saturday (early Sunday for the Asia Pacific). We would receive some colour on the US central bank’s views on monetary policy from Fed members Kocherlakota (non-voter) and Mester (alternate member).

Data-wise, investors would watch for US inflation reading as well as the University of Michigan sentiments results. Following the substantial upward revision in US Q2 GDP, every major US data points would be important to the data-dependent FOMC, in the run up to the September meeting. For the record, market is pricing in a 30% probability of a rate move next month, up from 24% on Wednesday.

Looking ahead to next week, a clutch of US data would be on the docket, including manufacturing PMI, construction spending, job figures, and trade balance. ECB will meet next Thursday. There will also be a meeting next Friday for G20 finance ministers and central bank governors to discuss global economic affairs. We could likely see the same discussion topics from the Jackson Hole symposium in the G20 summit.

In Asia, we have RBA policy meeting and China PMI numbers. The Australian central bank will be meeting next Tuesday 1 September, where economists unanimously agreed that the RBA will hold cash rate target steady at 2.00%.

For the time being, the relatively solid growth in employment has helped stave off the need for further easing, although the financial markets are still looking for at least one more rate cut of 25 basis point by early next year. Next, China is expected to release its official manufacturing PMI on 1 September, which would provide another look into the health of the world’s second largest economy, after the Caixin PMI number slumped to an over six-year low.


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