Marketmind: Soft landings and re-openings

Asian markets are set to open the week with a spring in their step on Monday, buoyed by Wall Street’s surge on Friday and rising hopes of a soft U.S. landing, and optimism surrounding China’s re-opening after its ‘zero-Covid’ policy came to an end this weekend.

A ‘Goldilocks’ U.S. employment report on Friday was taken by investors as a sign that the Fed might win its anti-inflation battle without doing too much damage to the economy – U.S. and global stocks, risky assets and bonds all soared, which is likely to set the tone in Asia on Monday.

A relatively benign U.S. backdrop – economic activity and inflation cooling enough to allow the Fed to end its hiking cycle soon, and maybe even reverse it later this year – is enough to whet investors’ risk appetite.

Throw in increasingly positive signs from China, and the bulls could be leading the charge on Monday.

Travelers began streaming into mainland China by air, land and sea on Sunday, as Beijing opened borders that have been all but shut since the start of the COVID-19 pandemic.

Beijing’s abrupt U-turn has triggered huge waves of infections, but investors hope the reopening will eventually bear economic fruit. China is in talks with Pfizer over a vaccine, and economists at many big banks are revising up their GDP growth forecasts for the second half of this year.

The increasing bullishness is being reflected in China’s exchange rate. The yuan is its strongest since mid-August, moving further away from the 7.00-per-dollar level.

Hong Kong tech stocks have been on a tear recently – up a staggering 65% from the October low – but could open on a more cautious note on Monday following news that Ant Group’s founder Jack Ma will give up control of the fintech giant.

Analysts are split on whether this paves the way for the company to revive its IPO plans, or results in further delay.

There is little in the way of economic data from Asia on Monday, but the flow accelerates later in the week. Among the major events to watch are: new loans, consumer and producer price inflation, and trade data from China; Australian and Indian inflation; and current account and Tokyo inflation figures from Japan.

South Korea’s central bank is also expected to raise interest rates by 25 bps on Thursday to 3.5 percent. Policymakers are split on where the terminal rate should be – three out of six in November saw 3.5 percent, two  saw potential for 3.75 percent.

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

– Fed’s Bostic speaks

– Japan’s PM Kishida meets with France’s President Macron

– Euro zone unemployment (November)