By Jamie McGeever
As the trading week kicks off in Asia on Monday, investors are feeling optimistic after a rebound in risk appetite last week. The possibility of a U.S. 'soft landing' is back on the radar, which could spell good news for Asian and emerging markets.
Emerging market equities saw their largest weekly increase since April, while world stocks had their best week since October. The Nasdaq and S&P also experienced their best week since October, and the Wall Street volatility index is back below 15.0.
Even Chinese stocks managed to break a three-week losing streak and bounce back from a six-month low. While the increase was modest at 0.4%, it is a positive sign for China bulls and policymakers.
Despite this, China's economic data continues to disappoint, falling short of economists' already pessimistic expectations. The country's economic surprises index hit its lowest point in nearly a year last week.
On the U.S. front, data and expectations have been declining, but there are indications of stabilization. The likelihood of a significant rate cut by the Fed next month is diminishing, with traders reducing the probability of a 50-basis point cut to around 25%.
If recession concerns ease, assets like stocks and emerging markets could see a boost. The recent strong performance of U.S. megacaps is also expected to support Asian assets linked to U.S. Big Tech.
Looking ahead, the Asian economic and policy calendar for Monday includes key data releases such as Japanese machinery orders, Malaysian trade figures, and Thai GDP numbers.
Recent movements in the Japanese yen have been significant, with currency speculators now holding 'long' positions for the first time since March 2021. The yen has strengthened around 10% following intervention from Tokyo and a hawkish stance from the Bank of Japan.
Overall, the wave of 'risk on' sentiment that swept through global markets last week has provided some stability, with the dollar/yen pair seeing its largest rise since June.
Key Developments for Asian Markets on Monday:
- Japan machinery orders (June)
- Malaysia trade (July)
- Thailand GDP (Q2)
Analysis: The recent rebound in risk appetite and positive market sentiment could lead to further gains in Asian and emerging markets. Investors should keep an eye on key economic data releases and currency movements to make informed decisions about their finances.