China realism returns, Powell has spoken
China realism returns, Powell has spoken
A Look Ahead: Cautious Optimism and Big Tech Swings in Asian Markets
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July 27 (Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
A sense of cautious optimism is expected to set the tone across Asian markets early on Thursday. Cooling down of China’s markets, fairly balanced comments from Federal Reserve Chair Jerome Powell, and anticipation of the European Central Bank’s rate decision are all contributing to the positive sentiment. However, with major events such as the Fed and ECB meetings, the Bank of Japan’s policy decision on Friday, and potential details on China’s stimulus measures on the horizon, investors seem hesitant to take major risks at the moment.
Despite this caution, big earnings reports from some of the largest U.S. tech firms are continuing to roll in, which could potentially result in significant price swings in individual stocks and sectors. Wednesday’s trading session on Wall Street demonstrated this well. Although the Nasdaq only fell by 0.1%, some stocks within the index experienced huge moves, adding or wiping out tens of billions of dollars in market cap. For instance, Microsoft fell 4%, Snap plunged by 15%, while Alphabet surged 5.5%.
Moreover, Meta, the company formerly known as Facebook, experienced a 7% jump in after-hours trading following a report of stronger-than-expected Q2 revenues and a forecast of strong Q3 revenues. These significant developments in the tech sector highlight the potential for both volatility and opportunity in the Asian markets.
Another significant development impacting Asian markets is the 11th U.S. interest rate hike since the Federal Reserve began raising rates last year. These interest rates are now at their highest in 22 years. Fed Chair Jerome Powell’s policy outlook for the coming months has been fairly balanced. While he left room for further tightening, he also emphasized that decisions will be data-dependent and made on a meeting-by-meeting basis. These measured remarks helped ensure a relatively subdued day on Wall Street, with the Dow Jones Industrials seeing a marginal rise of 0.24%. Although seemingly insignificant, this increase marked the index’s 13th consecutive daily rise, reaching its longest winning streak since January 1987. Interestingly, this record-breaking run occurred just nine months before the market experienced its biggest crash ever on Black Monday, with a 22% plummet.
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Returning our focus to Asia, a sense of realism has returned concerning the expected measures from Beijing to revitalize the Chinese economy. After experiencing outsized gains on Tuesday, particularly with a 14% surge in property stocks, major indices in China and Hong Kong closed in the red. This retraction signals the market’s realization of the challenges and uncertainties surrounding China’s economic recovery post-Covid restrictions.
In terms of economic data, one key event on Thursday’s calendar is the release of Chinese industrial profits for June. This data will likely underline the weakness in the economy since the lifting of Covid restrictions. Profits have been consistently declining every month for the past year, with double-digit declines recorded each month in 2022. May alone saw a significant slump of 18.8%.
To summarise, Thursday promises to be an eventful day for Asian markets. Investors are maintaining a cautious but optimistic attitude amidst various risk factors, including central bank meetings, tech giants’ earnings reports, and China’s economic recovery. The potential for wide price swings in individual stocks and sectors adds to the excitement and opportunity. Overall, market participants await further developments, such as Chinese industrial profits and the European Central Bank’s policy decision, to gain clearer direction for their investment strategies.
