Week in Review: Volatility in Asian Markets Amidst Economic Data and Fed Comments

Asian markets remained volatile over the past week, with most currencies and stocks moving in a flat-to-low range. The dollar strengthened against most Asian currencies due to hawkish comments from Federal Reserve officials, raising concerns over slowing economic growth. However, the dollar retreated when Federal Reserve Chair Jerome Powell presented a less hawkish outlook than expected.[0]

Investors also reacted to weaker-than-expected Chinese economic data, with industrial production and retail sales data from the world’s second-largest economy missing expectations in April.[1] However, Japan’s economy grew more than expected in the first quarter, aided chiefly by strong consumer spending and inbound tourism.[2] The Nikkei 225 index jumped 0.9% to a near 20-month high, extending recent gains.

Australia’s ASX 200 index fell 0.2%, due to signs of weakness in China, their biggest market, and a substantial worsening of consumer sentiment through early-May.[3] However, Australian markets rose, led by banks and tech stocks, as the country’s unemployment rate came in at 3.7% in April, higher than the 3.5% expected by economists.[4]

Both the dollar index and dollar index futures experienced a 0.2% decline due to increasing speculation that the Fed will halt its rate hike cycle in June.[0] The probability of a June pause is almost 83% as indicated by the prices of Fed Fund futures.[0] Benefiting from the possibility of a halt in U.S. interest rate increases, the Japanese yen experienced a 0.2% increase.[5]

Despite the volatility, there were some positive developments, with hopes that lawmakers in Washington will avert a first-ever U.S. default offsetting worries about China’s uneven economic recovery.[6] Additionally, optimism over a potential improvement in U.S.-China relations provided a boost to some Asian markets.

Looking forward, investors will be closely watching for more cues on raising the U.S. debt ceiling, as negotiations to avoid a default continue. They will also continue to monitor the impact of the Fed’s monetary policy on Asian markets, as well as any developments in the ongoing trade tensions between the U.S. and China.

0. “Asia FX muted amid debt ceiling woes, dollar dips after Powell comments” Yahoo Finance, 22 May. 2023, https://finance.yahoo.com/news/asia-fx-muted-amid-debt-010340157.html

1. “Sentiment Fragile Amid US Debt Ceiling Standoff” FX Empire, 16 May. 2023, https://www.fxempire.com/forecasts/article/sentiment-fragile-amid-us-debt-ceiling-standoff-fxtm-academy-1347064

2. “Asian stocks dip amid debt ceiling concerns; Japan rallies on strong GDP By Investing.com” Investing.com, 17 May. 2023, https://www.investing.com/news/stock-market-news/asian-stocks-dip-amid-debt-ceiling-concerns-japan-rallies-on-strong-gdp-3084246

3. “Asian stocks creep higher, China lags on disappointing data By Investing.com” Investing.com, 16 May. 2023, https://www.investing.com/news/stock-market-news/asian-stocks-creep-higher-china-lags-on-disappointing-data-3083177

4. “Asia markets rise as Wall Street lifted by hopes of debt ceiling deal” CNBC, 19 May. 2023, https://www.cnbc.com/2023/05/18/asia-markets.html

5. “Asia FX muted as dollar firms, Chinese yuan sinks to 5-month low By Investing.com” Investing.com, 18 May. 2023, https://www.investing.com/news/forex-news/asia-fx-muted-as-dollar-firms-chinese-yuan-sinks-to-5month-low-3085170

6. “Asian Shares Mixed On Chinese Growth Concerns” RTTNews, 19 May. 2023, https://www.rttnews.com/3365251/asian-shares-mixed-on-chinese-growth-concerns.aspx