Marketmind: On the ropes

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

All the signs – hawkish rhetoric from the Fed and ECB, the selloff on Wall Street and dismal Chinese economic data – point to Asian markets ending a bruising week firmly on the ropes.

Whether they end the year on the canvas will be decided in the few full trading days of 2022 that remain, but right now investors will surely welcome the weekend bell.

After the Fed’s 50 basis point rate hike on Wednesday, the Bank of England, European Central Bank and Swiss National Bank all followed suit on Thursday, with the ECB and SNB in particular loudly banging the anti-inflation drum.

MSCI’s Asia ex-Japan index fell nearly 2% on Thursday – before the broad-based European policy tightening – its biggest fall since Nov. 3. Unless it rallies by a similar amount on Friday it will register its first weekly decline in seven.

MSCI Asia ex-Japan – weekly change:

That seems unlikely. The Chinese economic data released on Thursday – investment, retail sales and industrial output – undershot already tepid expectations, and the global outlook was cooled further by surprisingly weak U.S. retail sales figures and Philly Fed index on Friday.

On top of that, China’s long-awaited retreat from its national ‘zero-COVID’ policy is turning messy. The death toll could soar, and hopes of a quick and widespread economic reopening may have to be tempered.

If Asia takes its cue from Wall Street, Friday will be a down day, with the and Nasdaq both on course to fall for a second straight week, something not seen since September.

That said, traders may be reluctant to cave to the hawkish noises coming from the Fed – and now the ECB – quite just yet.

More than 24 hours after Powell gave his clearest signal to date that there will be no policy easing in 2023, U.S. rates markets are still implying around 50 basis points of rate cuts next year. The battle lines between the Fed and rates markets remain firmly drawn.

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

– Australia flash PMIs (December)

– Singapore trade (November)

– U.S. flash PMIs (December)

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