Written by Jamie MacGyver
(Reuters) – A look at the day ahead in Asian markets.
The final quarter of the year has begun, and the sense of caution that marked its opening on Tuesday could not be removed from the enthusiasm and optimism that marked the end of the third quarter 24 hours earlier.
Investors fled risky assets such as stocks for the safety of US Treasuries, gold and the dollar when Iran fired a barrage of ballistic missiles at Israel on Tuesday in response to the Israeli campaign against Tehran’s Hezbollah allies in Lebanon.
The S&P 500 and global stocks had their worst day in a month, the US 10-year bond yield posted its biggest drop in a month, and oil rose 3%, after rising 5% at one point.
On top of escalating tensions between Israel and Iran, the gloom hanging over markets on Tuesday was exacerbated by a sharp decline in closely watched tracking model estimates for US GDP growth.
The Atlanta Fed’s US GDP model estimate for third-quarter US GDP growth was cut on Tuesday to 2.5% from 3.1% last week. The six-tenths of one percent decline was the largest drop since third-quarter tracking estimates were released in late July.
This will set the tone for markets on Wednesday across Asia. Chinese markets are closed for Golden Week, and the main economic releases will be inflation and industrial purchasing managers data from South Korea, and consumer confidence from Japan.
Although oil prices rose sharply on Tuesday, extremely negative year-on-year oil prices were a major reason why inflation declined around the world, much faster than many economists and policymakers had expected.
In many cases, such as the Eurozone, inflation is already at or even below the 2% target targeted by many central banks. Figures released Wednesday from Seoul are expected to show that South Korea’s annual consumer inflation rate fell to 1.9% in September from 2.0% in August.
This would be the lowest, and also the first time it has been below the 2% threshold, since March 2021.
Japan markets should be a bit calmer on Wednesday, although Nikkei futures point to a drop of more than 1% at the open, as the dust begins to settle after major political turmoil in recent days.
Investors are starting to get used to what they might expect from new Prime Minister Shigeru Ishiba, who was once considered a hawk on monetary policy and now appears to have softened his stance.
He said on Tuesday that he hopes the Bank of Japan will maintain accommodative monetary policy “as a trend,” and that his administration will continue the economic policy of former Prime Minister Fumio Kishida and “ensure Japan fully emerges from deflation.”
Here are the key developments that could provide further guidance to Asian markets on Wednesday:
– Inflation in South Korea (September)
– South Korea Manufacturing PMI (September)
– Japanese consumer confidence (September)
(Reporting by Jamie McGeever)