Trading volumes across Asia will be lighter than usual on Friday as investors unwind for Chinese New Year and other regional holidays, with Chinese credit and lending figures potentially being the main market-moving events.
The Australian dollar could move on Reserve Bank of AustraliaGovernor Michele Bullock’s testimony to parliament, although she might have to go beyond what she said on Tuesday after interest rates were kept on hold at a 12-year high of 4.35%.
Investors will look to wrap up the week on a positive note – barring a decline of 0.7% or more on Friday, the MSCI Asia ex-Japan equity index will rack up its third weekly gain in a row for the first time since June last year.
Japan’s Nikkei jumped 2% on Thursday and is back within touching distance of a new 34-year high.
The S&P 500 on Friday hit the 5000-pointlevel for the first time, even though bond yields rose and another Fed officialurged patience on rate cut expectations – the timing of the Fed’s first move is slowly moving towards June from May.
The Asian economic calendar on Friday is light. There are no major data releases scheduled, although there is a chance Beijing could release January’s credit and lending figures.
Chinese stocks go into the holiday season on a much stronger footing than they were a week ago. They have jumped 5% this week, chalking up their best week in over a year on optimism surrounding Beijing’s efforts to support asset prices.
But it may just be a short-term bounce based more on stretched positioning and over-sold momentum indicators than a deeper-rooted improvement in economic or market fundamentals.
China bears will point out that the rebound is coming from a low base – a five-year low, to be precise – and only a week ago the main indices had slumped as much as 6%. Prices are back to where they were only a few sessions ago.
And speaking of economic fundamentals, the latest inflationfigures from Beijing on Thursday suggest a definitive improvement remains some way off.
Consumer prices in January fell 0.8%, the fastest pace since 2009 and well below the 0.5% decline economists had expected. This is bound to ramp up the pressure on policymakers to do moreto revive an economy low on confidence and fend off the intensifying forces of deflation.
If this week’s market reaction is any indication, investors are betting that authorities will bow to that pressure.
Graphics are produced by Reuters.
Key developments that could provide more direction to markets on Friday:
RBA Governor Bullock testifies to parliament
China lending, credit (January *possible)
Germany inflation (January, final)
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