Though it is true that the Asian markets had a positive trend last week as one of the most major Asian indices, the Nikkei 225 (Japan 225) rose to a 33 years-high on Wednesday, it seems that this week the fortunes have turned.
What do economic data and the US debt ceiling crisis have to do with the latest downtrend in the Asian stock market and what are the other factors that might have contributed to these less-than-stellar developments? Here’s what you need to know about the Asian stock market’s latest updates:
How Might the US Debt Ceiling Affect Asian Stocks?
Last week, stocks and indices from Asia, including Japan, the world's third-largest economy, were boosted by hopes of a US debt ceiling agreement as US President Joe Biden and US House Speaker Kevin McCarthy met to reach an agreement. However, it seems that hope may have faded this week.
As the June 1st, 2023 default deadline looms larger for the world's biggest economy, it appears that traders and investors started this week more cautiously. This may be because in case the US goes into default, the US government could run out of funds and the country could go into a recession. Moreover, many analysts noted that this can also lead to a financial crisis that can reach the magnitude of the 2008 crash, which could be “a cataclysmic scenario.”
Hence, this highlights not only the US economy's prowess but can also explain why it can affect the broader markets, including the Asian economy. One analyst also claimed that if the US defaults, then “this will be echoed around the world,” and “the hit to growth would be overwhelming.” This can also cause interest rates to soar and affect the US dollar’s strength.
As a result, some Asian stocks may have reacted negatively to the renewed US debt ceiling worries on Tuesday. Japan’s premier stock index, the Nikkei 225, reversed last week’s rally on Tuesday and dropped by 0.42% as of the time of the writing. In addition, Hong Kong’s Heng Seng (Hong Kong 50) index also slid by 1.25% as of the time of the writing
Forex markets were also not spared this Tuesday as investors waited for a debt agreement on Monday that did not materialize. The USD/JPY (USDJPY) currency pair traded lower and dropped by 0.2% as of the time of the writing on Tuesday.
Nonetheless despite this gloomy outlook, House Speaker McCarthy and President Biden held an optimistic stance. McCarthy was quoted saying that he thinks that Biden and him “can find common ground, make our economy stronger, take care of this debt, but more importantly, get this government moving again to curb inflation, make us less dependent upon China, and make our appropriations system work.”
Other Important Economic Indicators and Events
The US debt ceiling discussions are not the only important economic events that may concern the global markets, in general, and the Asian markets in particular. This week, a myriad of economic data may shed light on the market’s trajectory to come and provide valuable insights into some of the world’s biggest economies.
As such, factors like Tuesday’s release of Japan’s manufacturing activity figures can also play a key role in the Asian stock market’s development. The Japanese PMI figures release today, Tuesday, actually showed that Japan’s manufacturing activity is recouping some of its COVID-19 losses.
The numbers showed that Japan’s manufacturing activity expanded for the first time in seven months. One analyst even commented that this shows “signs of improvement” as the “Japanese private economy continued on an upward trajectory."
Likewise, positive data emerged today in South Korea, as its Consumer Sentiment report showed that inflation is expected to weaken there. On the flip side, Singapore’s April inflation figures came in higher-than-expected.
Moreover, traders and investors may also want to keep an eye out on the US FOMC Minutes, US Initial Jobless Claims, and US Personal Consumption Expenditures (PCE) data which are set to be released respectively on Wednesday, May 24th, Thursday, May 25th, and Friday, May 26th.
These releases, according to analysts “will potentially give investors some new information about what the Fed will do in the June meeting,” and hence, might provide a sense of direction regarding the US and the global economy. If these reports reveal stronger results than anticipated, it could potentially ignite additional hikes in US short-term interest rate predictions ahead of the Federal Reserve's June 13-14 meetings. (Source:Reuters)
All in all, there are many factors that can come into play when it comes to trading the Asian markets. Therefore, keeping track of any key financial events and developments across global economies can help traders get a better sense of what’s to come and perhaps navigate market volatility more calmly.