Expect another jittery session for Asian markets on Wednesday, after Wall Street struggled to shake off its sluggish start to the week and purchasing managers index data showed that the global economy is coming under mounting strain.
Compounding the pain, any relief from lower U.S. Treasury yields on Tuesday evaporated late in the day, as the market reversed and the 10-year yield rose back above 3.00%.
Liquidity is thin and there are few key macro and corporate events in Asia to offer local direction on Wednesday. Classic - and risky - summer market conditions.
Sentiment remains sour due to signals from China, where the economy is being hobbled by a heavily indebted property sector, Covid lockdowns and an intensifying energy crisis.
The People's Bank of China has to cut interest rates, and the yuan is skidding to two-year lows against the dollar. If economic data fails to improve in August, the growth outlook will worsen, Bank of America economists wrote on Tuesday.
Chinese yuan vs US dollar:
Meanwhile, purchasing managers index data on Tuesday showed that U.S. private-sector business activity contracted for a second month in August to its weakest in over two years, and PMIs from Japan and Europe showed weak activity as well.
The global economy is under strain, yet many central banks are being forced to tighten policy because inflation is at its highest in decades. Monetary authorities in Asia, aside from China and Japan, are no different.
Indonesia's central bank raised interest rates on Tuesday for the first time since 2018 as it stepped up the fight against inflation and steady the rupiah. South Korea's central bank is expected to raise rates again on Thursday.
Key developments that should provide more direction to markets on Wednesday:
U.S. durable goods orders (July)
U.S. pending home sales (July)
U.S. 5-year Treasury auction
(Reporting by Jamie McGeever in Orlando, Florida; Editing by Mark Porter)
