While sentiment toward China’s economy and markets is clearlydeteriorating, the spillover to the rest of Asia may be contained to a certain extent by the more upbeat mood globally.
The S&P 500 on Monday hit a fresh record highfor a second consecutive day while Japan’s Nikkei 225 registered another34-year peak. This helped limit the downside in Asia on Monday, and the MSCI Asia ex-Japan index slipped 0.6%.
The BOJ is not expected to alter policy, so the statement and Ueda’s guidance will be intensely scrutinized for signals of when and how the ‘normalization’ process and eventual move away from negative interest rates will unfold this year.
Stocks are up almost 10% this month, the yen is sliding back toward the 150.00 per dollar area, and bond yields are significantly lower than they were a few months ago, despite being dragged higher in recent days by the rise in global yields.
The difference between investors’ outlook towards Japan and China is night and day. Both may be over-cooked right now, but market momentum in both countries is strong and showing little sign of reversing.
China and Hong Kong shares slumped again on Monday. China’s bluechip CSI300 Index skidded 1.6% to its lowest closing level in five years, the Shanghai Composite Index sank 2.7% – its biggest fall since April 2022 – and in Hong Kong the Hang Seng Index fell 2.3% to its lowest level in 14 months.
China’s central bank stood pat on interest rates on Monday, as expected. But many traders and investors will be wondering how much longer policymakers can sit on their hands. The longer it does, the longer the stock market selloff might go on.
Beijing has said it will take more forceful and effective measures to support marketconfidence, state media CCTV reported on Monday, citing a cabinet meeting chaired by Premier Li Qiang.
Also on Monday, China’s major state-owned banks moved to support the yuan, tightening liquidity in the offshore foreign exchange market while actively selling U.S. dollars onshore as equities slid, sources told Reuters.
Graphics are produced by Reuters.
Key developments that could provide more direction to markets on Tuesday:
Japan monetary policy decision
South Korea PPI (December)
Australia business confidence (December)
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