Ominous signal: Wall Street slides despite yield slump

Oct 27 – Asian markets look to round off a difficult week with a flourish on Friday, but ominous signals from US trading on Thursday – stocks closed in the red again despite a steep decline in bond yields – do not auger well.

The conditions for a sharp rebound on Wall Street were in place – third quarter US GDP beat forecasts, and the ‘soft landing’ narrative was bolstered by some signs of cooling inflation and a sharp pullback in yields.

But not only did stocks fail to claw back any of Wednesday’s heavy losses, they fell almost as much again, pushing the S&P 500 and Nasdaq to new lows since May.

This is the backdrop to Friday’s open in Asia, where Japanese economic data, bonds, and currency will again be under intense scrutiny ahead of next week’s Bank of Japan policy meeting.

The main data release in Asia on Friday will be consumer price inflation in Tokyo for September. Core consumer inflation in the Japanese capital is expected to have held steady at a 2.5% annual rate in October, according to a Reuters poll, the lowest since July last year.

The BOJ next week is set to raise its national core consumer inflation forecast for the fiscal year ending in March 2024 to near 3% from the current 2.5% projection made in July, sources told Reuters.

The BOJ is inching closer to ending negative interest rates and phasing out ultra-accommodative monetary policy. Twenty-five of 28 economists polled by Reuters expect no policy change next week, but the remaining three – at Barclays, JP Morgan, and UBS – think the BOJ will begin unwinding its easy stance then.

Japanese Prime Minister Fumio Kishida on Thursday called for Japan to make a “total break” from its deflationary past, and markets continued to test the BOJ’s resolve.

The yen on Thursday sank below 150.00 per dollar to its weakest since October 21 last year. The low that particular day near 152 per dollar was the yen’s weakest level in 32 years.

There has been no yen-supporting intervention to temper the current exchange rate depreciation, but the BOJ has been more active in the bond market, where the 10-year yield hit a decade-high on Thursday at 0.89%.

In China, meanwhile, industrial sector profit figures for the first nine months of the year are on the docket Friday.

Year-to-date profits at China’s industrial firms have been falling every month since July last year, and at a double-digit pace every month this year. The good news, however, is the pace of decline has been easing since March.

China’s main CSI 300 index is flat for the week but down almost 5% this month, while the MSCI Asia ex-Japan index is down 1.75% and 4.5%, respectively.

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

– Tokyo CPI inflation (September)

– China industrial profits (Sept, YTD)

– Australia producer price inflation (Q3)

(By Jamie McGeever; Editing by Marguerita Choy)