Morning Bid: Markets assess G7, China to maintain rates

Jamie McGeever provides a preview of the Asian markets for the next day.

On Monday, the People’s Bank of China is anticipated to maintain key lending rates at current levels as Asian traders weigh the ramifications of the G7’s position on China and the tense and unstable circumstances surrounding the U.S. debt limit stalemate in Washington.

Looking further into the next week, policy choices in New Zealand, South Korea, and Indonesia, inflation data from Singapore and Malaysia, and Japanese unemployment and retail sales data are anticipated to be the primary regional drivers for Asian markets. The G7 leaders said in their joint statement on Saturday that they want to “de-risk, not decouple” their economic interaction with China. They said that they are not going inward and do not want to obstruct China’s economic growth.

However, as economic indicators have plummeted in recent weeks and key international powers seem to be rethinking their long-term investment policy towards China, Chinese stocks have tumbled precipitously.

Although the Chinese yuan has breached the 7.00 to 1 level, there is little chance that it would get immediate policy assistance as the PBOC is anticipated to hold the one-year and five-year loan prime rates steady at 3.65% and 4.30%, respectively, on Monday. If anything, the PBOC may decide to ease policy in the next months as a result of the sluggish economy and declining inflation.

In Japan, it couldn’t be more different. The economy expanded far faster than anticipated in the first quarter, stocks have surged to a 33-year high, and the Bank of Japan may soon start to rethink its ultra-loose policies. What investors see is pleasing.

The atmosphere in Washington around the debt limit may determine the general market reaction on Monday. During the president’s Sunday return from the G7 meeting, Speaker of the House Kevin McCarthy and President Joe Biden had a “productive” phone chat. They will meet following their conversation.

On Sunday, McCarthy said there had been productive conversations about finding a solution to the situation and that staff-level negotiations will restart before his meeting with Biden. The markets will see this as advancement. Treasury Secretary Janet Yellen, on the other hand, reaffirmed that June 1 is still a “hard deadline” for lifting the debt limit. If not, the government will probably run out of money and be unable to fulfill all of its obligations until June 15, when more tax payments are due.

Time is running short, and if there is no agreement, a U.S. default, which could be disastrous for global markets, is still a possibility.

The Reserve Bank of New Zealand is anticipated to increase its cash rate one more time this week by 25 basis points to 5.50%, while the Bank of Korea and Bank Indonesia are anticipated to retain their respective benchmark rates at 3.50% and 5.75%.

The following three significant events might give markets on Monday greater direction:

  • The decision on China lending prime rates
  • March orders for equipment from Japan
  • Consumer confidence in the Eurozone (May)

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