On Thursday, Asian markets are expected to face higher volatility due to lighter trading volumes caused by the July 4 U.S. holiday. Despite this, the global financial environment appears favorable, with stocks rising, the dollar weakening, and Treasury yields decreasing, indicating a loosening of financial conditions.
The minutes of the Federal Reserve’s June policy meeting, released on Wednesday, suggest that price pressures are easing, as stated by Fed Chair Jerome Powell earlier in the week. However, a majority of participants believe that U.S. economic activity is cooling, supported by disappointing service sector data and a downward revision to the Atlanta Fed’s GDP growth tracker.
In currency markets, traders will closely monitor the yen and potential intervention from Japan to prevent further depreciation, especially with U.S. markets closed. The yen reached a 38-year low of around 162.00 per dollar on Wednesday, and although Tokyo has yet to intervene, traders remain vigilant due to the yen’s consistent decline and relatively subdued volatility.
Japanese bond yields are also on the rise, with the 10-year JGB yield reaching 1.10% and the spread over the two-year JGB yield widening to 75 basis points. This, combined with the Nikkei being close to breaking its March record high, suggests that Japanese assets are experiencing significant levels and moves. The potential for a pullback in these assets is rising.
The economic calendar for Thursday is light, with only Hong Kong PMI and Australian trade data scheduled for release. However, Friday’s calendar is busier, featuring inflation data from Taiwan, Thailand, and the Philippines, current account data from South Korea, retail sales figures from Singapore, and household spending numbers from Japan.
Key developments that could influence markets on Thursday include the release of Hong Kong PMI, Australian trade data, and a speech by the Thai central bank chief Sethaput Suthiwartnarueput. (Reporting by Jamie McGeever; Editing by Josie Kao)
