Markets Aug 27

Asian markets edgy awaiting Powell's growth analysis 

Asian stocks broadly lower ahead of Jackson Hole speech; Australia outperformance led by miners; Credit markets firm as rates to stay lower for longer

Asian markets edgy awaiting Powell's growth analysis 
US Federal Reserve Chairman Jerome Powell. File photo: AFP

(ATF) Asian markets sentiment is upbeat after the overnight rally on Wall Street but gains are capped as investors monitor the Jackson Hole Economic Symposium. It is a gathering of central bankers, policymakers, academics and economists from around the world to be held online this year due to the pandemic.

The symposium has been used in the past by Fed chiefs to signal policy shifts, and markets will await similar comments from US Federal Reserve Chair Jerome Powell when he makes his address at 1310 GMT.

“The three main speeches by Fed Chairman Jerome Powell, Bank of England Governor Andrew Bailey and European Central Bank Philip Lane will affirm that interest rates will stay low for longer,” said DBS analysts in a note.

Powell is to speak on “Why Has The Trend Rate Of Growth Declined?”, Bailey on “Micro Uncertainty and Policy Uncertainty” and Lane will share views on “Crisis Management in the COVID-19 Economic Shutdown “ at a panel discussion.

The note said Powell’s preview on “average inflation targeting” was not new as the Fed did not hike rates for seven years post the global financial crisis even whilst the core PCE deflator rose above 2% inflation target because of high joblessness.

This expectation is keeping the US dollar under pressure this morning, with the unit trading at 92.93 versus a basket of currencies.

Hong Kong’s Hang Seng index is down 1.1%, Mainland China’s CSI 300 is off 0.33% and the Nikkei is down 0.44%. US Treasuries are in demand given the risk-off mood with the 10-year yield declining 2 basis points to 0.67%.

But the Australian S&P/ASX 200 is outperforming with the benchmark higher by 0.53% propelled by mining giants after Australian economic data showed machinery and equipment investment as well as construction investment fell less than anticipated in Q2.

“Meanwhile, firms are becoming more pessimistic about the outlook for capital spending,” said Marcel Thieliant, Senior Australia & New Zealand Economist at Capital Economics in a note after the data release while pointing out mining firms’ capital spending projections point to a 6.2% fall in investment in the current financial year, less than the double-digit declines projected in 2015/16 and 2016/17.

“The upshot is that the outlook for capital spending isn’t as gloomy as one would expect in the current environment.”

Overnight Wall Street had a strong session with the S&P 500 and Nasdaq benchmarks notching up fresh records on upbeat corporate results. The Dow Jones Industrial Average added 0.3%, the S&P 500 gained 1.02%, and the Nasdaq Composite advanced 1.73%.

But credit markets remain upbeat as the lower for longer rates environment is triggering investor appetite for yield producing instruments. The Asia IG index is a basis point tighter at 61/62. Emperor International’s 3-year bond, ABC Intl 5-year dollar bond , and Zhongan Online Insurance being monitored by investors.

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