Morning Bid: Asia remains bullish despite US inflation relief

Sonali Desai previews the day ahead in European and worldwide markets.

Thursday’s Goldilocks mix of lowering U.S. inflation and a still-hot labor market casts a warm glow across markets, with Asian stocks extending a rise and lower global yields spurring further unwinding of yen carry trades.

MSCI’s ex-Japan Asia-Pacific share index (.MIAPJ0000PUS) was on track for its best week in 2023, while the yen was set to post its greatest weekly gain against the dollar since January.

Indeed, the yen’s gain on Friday brought it within striking distance of its converging 100-day and 200-day moving averages, which are approaching 137.00 per dollar.

Unusually, interest rate differentials are favoring the Japanese currency, with 10-year US Treasury yields hovering near a one-month low on Thursday, while benchmark Japanese government bond yields touched a four-month high of 0.485%, creeping closer to the Bank of Japan’s implicit 0.50% ceiling.

As a result, the dollar continues under pressure, notably against Asia’s other problematic currency, the Chinese yuan, which attracted rousing commentary from the People’s Bank of China.

The announcement of the future governor of the Reserve Bank of Australia was also in the spotlight in Asia. While the selection of Deputy Governor Michele Bullock as the central bank’s new boss drew a lot of attention, the Australian dollar and bond yields scarcely moved in response to what was widely seen as an evolution, rather than a revolution, in policymaking.

The rest of the day’s economic data is sparse, with the main releases being eurozone May commerce, U.S. export and import prices, and University of Michigan consumer confidence.

However, JPMorgan Chase (JPM.N), Citigroup (C.N), Wells Fargo (WFC.N), and BlackRock (BLK.N) are all set to announce second-quarter profits.

Another event that is guaranteed to pique the curiosity of a far larger audience is the widely anticipated strike by Hollywood actors, who will join film and television writers in what might be a lean autumn viewing season.

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