Marketmind: U.S.-China crisis?

By Jamie McGeever

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

Traders in Asia can expect a choppy start to the week as they absorb Friday’s sell-off on Wall Street following a freakishly strong U.S. jobs report and heightened geopolitical tensions after a U.S. fighter jet shot down a suspected Chinese spy balloon on Saturday.

This comes ahead of a busy week on the regional economic data and events calendar, which includes interest rate decisions from India and Australia, inflation and bank lending data from China, and current account figures from Japan.

Traders in Asia had the weekend to digest the U.S. market action on Friday, and the signals are mixed. Wall Street fell as implied U.S. rates rose and 2023 rate-cut expectations faded, but technical and momentum indicators are positive, market volatility remains low, and “soft landing” hopes are rising.

It comes back to that old conundrum: is good news bad news? Is strong economic data a sign of a healthy economy and therefore positive for earnings, or a red flag because higher interest rates will slow the economy and hit earnings?

Monday’s session in Asia could also be clouded by the latest deterioration in Sino-U.S. relations and the Chinese spy balloon saga. Beijing on Sunday condemned the attack as an “over-reaction”, saying it reserved the right to use necessary means to deal with “similar situations”, without elaborating.

Investors will also have a close eye on another regional crisis – this one financial, centering on India’s Adani Group, after U.S.-based short-seller Hindenburg Research accused the conglomerate of stock manipulation and unsustainable debt.

GRAPHIC-Adani Group – The giant drop : https://www.reuters.com/graphics/ADANI-INDIA/zdpxdnxrepx/chart.png

GRAPHIC-Adani Group stocks plunge : https://www.reuters.com/graphics/ADANI-INDIA/byvrlkqrrve/chart.png

Financial contagion fears are spreading in India. Ratings agency Moody’s warned the Adani Group may struggle to raise capital, and S&P cut the outlook on two of its businesses.

India’s central bank on Friday sought to assure investors that the country’s financial system is solid, insisting that “various parameters relating to capital adequacy, asset quality, liquidity, provision coverage and profitability are healthy.”

This is the backdrop to the central bank’s policy decision on Wednesday when it is expected to end its tightening cycle, raising the key lending rate by 25 basis points to 6.50%.

Meanwhile, on Tuesday the Reserve Bank of Australia is also expected to raise rates by 25 basis points, for a fourth time, to 3.35%. Analysts reckon this will be the penultimate hike before the cash rate settles at 3.60% in March.

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

– Indonesia GDP (Q4, full year 2022)

– Thailand inflation (January)

– Euro zone retail sales (December)

(By Jamie McGeever; Editing by Lisa Shumaker)