Volatility shock fades, India CPI on deck
By Jamie McGeever
Aug 12 (Reuters) -A look at the day ahead in Asian markets.
A week is not just a long time in politics.
Seven days ago a huge unwind in the yen carry trade and selloff in megacap U.S. tech triggered a wave of volatility that sent global markets reeling and investors running for the safety of U.S. Treasuries.
As the new trading week gets underway in Asia on Monday, that seems a long time ago - many assets have recovered much of these losses, volatility has subsided, and traders have heavily scaled back their rate cut expectations.
The question now is whether that momentum can be sustained. Some investors will seize upon lower equity volatility to push up risky assets again; others will be wary of potential aftershocks in any corner of the market, especially in mid-August when liquidity is much thinner than usual.
Monday's Asian calendar is light. Indian consumer price inflation is the main event, leaving markets at the mercy of global forces.
If that's the case, Monday should be relatively calm. Wall Street rose on Friday, meaning the Nasdaq and S&P 500 ended last week essentially flat. Treasury yields fell on Friday but registered their biggest weekly rise in months.
Stronger-than-expected U.S. economic data suggesting recession fears are overblown, and a couple of poorly-received U.S. debt auctions, pushed yields higher. No bad thing, perhaps, if you think the previous week's plunge was excessive.
Asian markets' rebound last week was pretty impressive. After the Nikkei registered its second biggest fall on record and its third largest ever rise in the space of 24 hours, the index ended the week down only 2.5%.
Other benchmark indices fared even better - the MSCI Asia ex-Japan and MSCI World index both ended flat, and the MSCI Emerging Market index rose 0.2%.
In currencies, U.S. futures market data on Friday showed that hedge funds slashed their net short yen position in the week to Aug. 6by 62,000 contracts. That is the biggest yen-bullish weekly swing since the Fukushima disaster in February 2011, and third biggest since comparable data started in 1986.
If this is representative of the broader FX market, the short yen 'carry trade' has been mostly wiped out. Do traders begin shorting the yen and putting on carry trades again, or not?
Indian inflation is the main data point in Asia and comes after the Reserve Bank of India last week kept its key interest rate unchanged at 6.50%, dismissing the market turbulence and focusing on getting inflation down to its 4% medium term target.
The consensus in a Reuters poll is for annual consumer inflation in July to fall to 3.65% from 5.08% in June. That would be the first time in five years below the RBI's medium-term target.
Here are key developments that could provide more direction to Asian markets on Monday:
- India interest rate decision
- India industrial production (June)
- Germany wholesale inflation (July)
India's inflation increased in June https://reut.rs/4fCXUkM
Wall Street's "fear gauge" saw sharp upswings this week https://tmsnrt.rs/4dg7TuG
Historic unwind in CFTC yen short positions https://tmsnrt.rs/4fJC1QD
Reporting by Jamie McGeever; Editing by Diane Craft
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
