By Jamie McGeever
(Reuters) - A look at the day ahead in Asian markets.
The monthly Chinese 'data dump' kicks off the global trading week on Monday, with the slew of top-tier indicators likely to give investors a measure of how much the world's second largest economy is struggling to gain momentum.
Producer and consumer prices last week confirmed that the threat of deflation still hangs over China, and retail sales, business investment, industrial production, and house price figures on Monday will give a clearer picture of economic activity.
China's central bank is widely expected to leave a key policy rate unchanged when rolling over maturing medium-term loans on Monday, with worsening interest margins and a weakening currency hampering authorities' ability to ease policy.
In a Reuters poll of 31 market watchers, 30 expect the rate on the one-year medium-term lending facility loan to be left at 2.50%. The lone outlier projected a marginal cut of 5 basis points.
This comes amid a generally upbeat global market environment with hopes of a U.S. 'soft landing', a relaxed Fed, subdued volatility, and continued optimism in tech pushing Wall Street and world stocks to record highs.
Disinflation in the United States appears to be broadening out across consumer and producer prices, and the impact on market rates is clear to see - the 10-year Treasury yield on Friday hit a two and a half-month low below 4.20%, and rates traders are fully pricing in two quarter-point cuts this year.
That's a dovish stance relative to the Fed's revised projections of one cut this year, a position Minneapolis Fed President Neel Kashkari reiterated on Sunday.
Falling U.S. yields may benefit Asian and emerging markets, but a strengthening dollar could counteract this. The dollar closed last week at a six-week high, and CFTC positioning data on Friday showed that funds increased their long dollar positions for the first time in seven weeks.
The U.S. currency starts the week on the front foot, especially against the yen, after the Bank of Japan's cautious stance on Friday on raising interest rates and reducing its balance sheet dragged the yen and Japanese bond yields lower.
This could lend support to Japanese stocks on Monday.
Chinese stocks, however, remain under pressure. As the yuan fell to a seven-month low on Friday, stocks hit their lowest in nearly two months.
Beijing appears to be getting nervous. China's securities regulator on Sunday said it will step up curbs on short-selling activities, and will tighten supervision of illegal share reductions by listed companies' major shareholders.
In South Korea, meanwhile, a senior presidential official said this weekend that stabilizing prices are laying the conditions for the central bank to cut interest rates.
And in corporate news, Hyundai Motor India on Saturday sought regulatory approval to list on the Mumbai stock market in what could be India's biggest IPO ever.
Here are key developments that could provide more direction to markets on Monday:
- China 'data dump' (May)
- Japan machinery orders (April)
- South Korea trade (May, revised)