Marketmind: Last hurrahs

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People walk outside the Bank of England in London

By Jamie McGeever

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

The finishing line for one of the most turbulent financial market years on record is in sight, but investors must brace for one final wave of volatility this week as the Federal Reserve and three other major central banks set interest rates.

The Fed, European Central Bank, Bank of England and the Swiss National Bank are all widely expected to raise rates by 50 basis points each later this week, so the potential market disruption will come from the subsequent press conferences.

In Asia, the central bank of The Philippines is expected follow the Fed and reduce the pace of rate hikes to 50 bps from 75 bps at its last meeting, and policymakers in Taiwan are expected to deliver another 12.5 bps hike.

Chinese retail sales, Indian inflation and Australian unemployment are among the regional economic data highlights this week, and markets will continue to be sensitive to the ebb and flow of Beijing relaxing its zero-COVID policy.

But the direction and tone for the week will be set by Fed Chair Jerome Powell in Washington, and to a lesser extent European Central Bank President Christine Lagarde in Frankfurt and Bank of England Governor Andrew Bailey in London.

So far this month we have had ‘hawkish’ hikes from Australia and India, countered by a ‘dovish’ hike from Canada. Investors go into the meetings in cautious mood – the MSCI Asia ex-Japan index has chalked up two consecutive weekly declines, and the MSCI World index just posted its biggest weekly fall since September.

This is despite the clear optimism surrounding China’s economic reopening – Shanghai stocks gained 3.3% last week and have risen five of the last six weeks, and both the onshore and offshore yuan exchange rates rallied through the 7 per dollar mark last week.

Graphic: Chinese stocks – weekly change – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjkkoynvr/ChinaStocks.png

But as China’s COVID curbs fade, China’s health system will be severely tested and the impact on its 1.4 billion population remains to be seen.

In Hong Kong, meanwhile, pro-democracy tycoon and China critic Jimmy Lai has been sentenced to more than five years in prison for fraud.

Annual inflation in India is expected to have slowed to 6.4% in November from 6.77% in October, which would be the lowest since February.

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

– India inflation (November)

– Japan goods prices (November)

– Japan Business Survey index (Q4)

(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Diane Craft)

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