Marketmind: The calm – or lull? – after the storm

By Jamie McGeever

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

A sense of calm returned to markets on Tuesday as investors rediscovered some of the risk appetite that got mauled the previous day, offering a springboard for a positive open in Asia on Wednesday.

It lacked full conviction though – oil prices skidded to the lowest this year, bank stocks and bond yields only partially retraced Monday’s slump, and traders are still betting the Fed will cut interest rates by 50 basis points later this year.

Concern surrounding the U.S. banking system and whether regulators’ emergency measures last weekend prevent contagion from spreading after Silicon Valley Bank’s collapse last week will not disappear overnight, especially following the release of sticky core U.S. inflation data.

In that light, Fed Governor Michelle Bowman’s speech ‘Modernizing the U.S. Banking System’ late in the U.S. day on Tuesday may garner more attention than usual.

Investors in Asia have a fairly packed data calendar themselves to get through on Wednesday, with the latest snapshots of Chinese retail sales, industrial production and fixed business investment the pick of the bunch.

China retail sales, https://fingfx.thomsonreuters.com/gfx/mkt/lbpggjrlbpq/Chinaretailsales.png

China fixed asset investment, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdkjmoovo/Chinafixedasset.png

Economists expect retail sales and industrial production to recover strongly, pointing to the economic recovery from COVID-19 lockdown gathering momentum.

Yet growth in fixed business investment, a key plank of any recovery, is expected to slow from January. So it’s a mixed bag, and the burden of proof on China bulls may be higher given how surprisingly weak February’s inflation figures were last week.

Note, however, that the retail sales and industrial production figures are for January and February, so they may be distorted. Analysts at ING expect the numbers overall to point to a “stable recovery”, meaning the central bank should leave interest rates unchanged on Friday.

The Indian rupee and Indonesian rupiah may be sensitive to Indian and Indonesian trade figures for February – Reuters polls suggest India’s deficit will widen slightly to $19 billion, and a sharp increase in imports will narrow Indonesia’s surplus to $3.3 billion.

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

– China retail sales, industrial production, fixed investment (February)

– India trade (February)

– Indonesia trade (February)

(By Jamie McGeever; editing by Josie Kao)