Marketmind: China-Taiwan tensions loom ever larger

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

The dramatic escalation in China-Taiwan tensions will loom large over Asia on Monday, potentially cranking up market volatility in a session with trading volume already likely to be reduced with much of Europe closed for the Easter Monday holiday.

On the economic data front on Monday, Japanese current account figures for February and the possible release of Chinese credit, loan growth and money supply data for March could divert investors’ attention away from the geopolitics.

Looking ahead, the major Asian economic and policy calendar events for the rest of the week are: Chinese CPI and PPI inflation, and trade balance; Indian inflation; Australian unemployment; and interest rate decisions from South Korea and Singapore.

Globally, market direction this week will be driven in part by March U.S. consumer price inflation on Wednesday. Headline annual inflation is expected to continue slowing, but core remains sticky. Indeed, headline is expected to fall below core.

The latest U.S. employment data on Friday – on balance, a pretty solid report – didn’t really change rates traders’ outlook for the Fed much. They still think the Fed has probably peaked and will cut rates by at least 50 basis points this year.

The first-quarter U.S. earnings season gets underway this week too, with major banks including JPMorgan and Citigroup out on Friday. Analysts expect S&P 500 earnings to fall 5.2% from Q1 last year.

More immediately though, attention on Monday will be fixed on the final day of China’s three-day military drills around Taiwan.

The exercises, which Beijing launched after Taiwan’s President Tsai Ing-wen met with U.S. House Speaker Kevin McCarthy in California last week, involve China simulating precision strikes on Taiwan and encircling the island with around 10 warships and dozens of fighter jets.

The de facto U.S. embassy in Taiwan said on Sunday the U.S. was monitoring China’s drills and was “comfortable and confident” it had sufficient resources and capabilities regionally to ensure peace and stability.

Meanwhile, Foxconn said on Sunday it is planning to invest $820 million in the next three years in new manufacturing facilities in southern Taiwan to support its electric vehicle (EV) ambitions.

Foxconn, a major Apple Inc supplier and iPhone assembler, has big ambitions in the EV market as it seeks to diversify its revenue base.

Here are three key developments that could provide more direction to markets on Monday:

– Day 3 of China’s military exercises around Taiwan

– Japan current account (February)

– China credit, loan growth, money supply (March)

(By Jamie McGeever; Editing by Josie Kao)