Asian stocks, after a lackluster start to the quarter followed by a 0.5% decline on Tuesday, are poised for a potential turnaround on Wednesday. This optimism stems from several factors: a surge in U.S. and global stocks driven by the tech sector, declining Treasury yields, and a weaker dollar.
Investors in Asian equities are anticipating a positive global backdrop, albeit tempered by upcoming service sector Purchasing Managers’ Index (PMI) reports from economic powerhouses like China and Japan. These reports could potentially alter market dynamics across the continent.
Cross-asset volatility indicators, such as the VIX index hitting a five-week low and easing currency market volatility, are also contributing positively. Notably, volatility in dollar/yen rates for overnight and one-week periods has decreased, suggesting reduced concerns among investors regarding potential Japanese intervention.
Federal Reserve Chair Jerome Powell’s recent remarks at the ECB’s annual policy conference further bolstered market sentiment. Powell indicated that while the Fed requires more data before considering interest rate cuts, the U.S. economy is experiencing a “disinflationary path.” This led to a retracement of bond yields from Monday’s sharp rise, a dip in the dollar’s value, and increased stock prices—a collective easing of financial conditions favorable for risk appetite and emerging market assets.
On Wall Street, the tech sector, including notable gains from Tesla, has been a standout performer. Tesla shares surged 9% to a six-month high, marking a 15% increase for the week, the best performance in 18 months. Analysts highlighted better-than-expected vehicle deliveries and robust sales in China as key drivers behind Tesla’s positive performance.
In contrast, Asian tech stocks have struggled in recent weeks, with the Hang Seng tech index experiencing its seventh decline in eight sessions, reaching its lowest point since April 24. This contrasts sharply with the S&P info tech index, which has risen 15% since mid-May.
Looking ahead to Wednesday, market focus will center on service sector PMIs from China, Japan, Australia, Singapore, and India. Of particular interest is China’s unofficial Caixin PMI index, which indicated robust services activity growth since January 2023, reaching its fastest pace since July last year.
Key developments scheduled for Wednesday include:
1.Service sector PMIs from China, Japan, India, Australia, and Singapore for June.
2.Euro zone services PMI data for June.
3.South Korea’s FX reserves for June.
Investors will closely monitor these indicators for further insights into market direction amid the evolving global economic landscape.
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