By Jamie McGeever
(Reuters) – A look at what lies ahead for Asian markets.
The last quarter of the year is underway, and the sense of caution that characterized its opening on Tuesday could not be further from the effervescence and optimism that marked the end of the third quarter 24 hours earlier.
Investors fled risky assets like stocks for the safety of U.S. Treasuries, gold and the dollar when Iran fired a barrage of ballistic missiles at Israel on Tuesday in retaliation for Israel's campaign against Tehran's allies Hezbollah. in Lebanon.
The S&P 500 and global stocks had their worst day in a month, the US 10-year bond yield posted its steepest drop in a month and oil rose 3%, after rising 5% at one point.
In addition to escalating tensions between Israel and Iran, the sense of pessimism hanging over markets on Tuesday was accentuated by the sharp drop in an estimate of U.S. GDP growth according to a closely watched model.
The Atlanta Federal Reserve's GDPNow model estimate for third-quarter U.S. GDP growth was lowered Tuesday to 2.5% from 3.1% last week. The drop of six-tenths of one percent was the biggest drop since tracking third-quarter estimates were released in late July.
This will set the tone on Wednesday for markets across Asia. Chinese markets are closed for Golden Week, and the main economic releases will be South Korea's manufacturing and inflation Purchasing Managers' Index data and Japan's consumer confidence.
Although oil rose sharply on Tuesday, the deeply negative year-over-year oil price is one of the main reasons why inflation around the world is cooling, and much faster than many economists and policymakers expected.
In many cases, such as in the euro zone, inflation is already at or even below the 2% target many central banks are aiming for. Wednesday's figures from Seoul are expected to show that annual consumer inflation in South Korea eased to 1.9% in September from 2.0% in August.
It would be the lowest level, and also the first time below that 2% threshold, since March 2021.
Japanese markets should be a little calmer on Wednesday, although Nikkei futures point to a drop of more than 1% at the open, as the dust begins to settle after the major political turmoil of recent days.
Investors are getting used to what they might expect from new Prime Minister Shigeru Ishiba, once considered a hawk on monetary policy and who now appears to have softened his stance.
He said Tuesday that he expected the Bank of Japan to maintain loose monetary policy “as a trend,” and that his administration would continue former Prime Minister Fumio Kishida's economic policy and “ensure that Japan completely emerges from deflation.”
Below are key developments that could provide further direction to Asian markets on Wednesday:
– South Korea inflation (September)
– South Korea Manufacturing PMI (September)
– Japanese consumer confidence (September)
(Reporting by Jamie McGeever)