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Marketmind: Calm before policy, data storm

A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

Australian retail sales is the only event on the Asian and Pacific economic calendar on Monday, but whatever the reading, it will be the quiet before the storm in what looks like a huge and potentially volatile week for world and Asian markets.

Monetary policy decisions from Japan and Malaysia, purchasing managers index reports from all over Asia, inflation data from South Korea, Indonesia and Vietnam, and GDP growth figures from Taiwan and Hong Kong are the regional highlights of the week.

China’s embattled property developer Evergrande will be under the spotlight again following media reports last week that it has held talks with creditors who opposed its restructuring plan.

Asian markets on Monday will also give their initial reaction to news over the weekend of an expected U.S.-Sino summit between presidents Joe Biden and Xi Jinping next month. Tech and chip stocks could be particularly sensitive.

On top of that, the U.S. earnings season rolls on, Japan’s corporate reporting floodgates open, and month-end flows across all asset classes could be powerful. Oh, and there is the Federal Reserve’s interest rate decision on Wednesday too.

Investors in Asia wade into that sea of event risk in slightly better shape than might immediately appear to be the case, having been hit hard by the surge in U.S. bond yields and widespread tightening of tightening of financial conditions.

But the MSCI emerging market index and Asia ex-Japan index’s falls of around 0.6 per cent last week were notably shallower than the MSCI Work index’s 2 per cent slide.

Their falls in October are both on track to be around 3.5 per cent, not quite as bad as the MSCI World’s and S&P 500’s respective declines of 4.2 per cent and 5.4 per cent. Perhaps a period of relative outperformance for Asian and emerging market assets lies ahead?

China’s recent economic and market signals, at least, are brightening a little.

China’s economic surprises index is its highest in over five months – rising from a very low base, admittedly – while the CSI300 index of blue chip stocks rose on Friday and on the week.

The benchmark index is up four days in a row, its best run since June, and its 1.5 per cent rise last week was its biggest in seven weeks.

Japan’s bonds and currency remain under intense scrutiny ahead of Tuesday’s Bank of Japan decision and guidance. The yen rebounded around 0.5 per cent against the dollar on Friday for its best day in three weeks, and the 10-year Japanese Government Bond yield eased a couple of basis points.

But the yen and JGBs go into the meeting very much on the weak side. The BOJ is inching closer to ending negative interest rates and phasing out ultra-accommodative monetary policy, but probably not this week, even though inflation in the capital Tokyo unexpectedly accelerated in October.

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

– Australia retail sales (September)

– Bank of Japan two-day policy meeting starts

– Germany GDP (Q3)

(By Jamie McGeever; Editing by Diane Craft)

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