Marketmind: Awaiting another China exports slump

By Jamie McGeever

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

Wall Street and world stocks may have shrugged off a spike up in long-term U.S. bond yields on Monday, but investors in Asia are likely to be in more cautious mood on Tuesday as they brace for the biggest fall in Chinese exports since the pandemic.

The median forecast in a Reuters poll of economists is for a 12.5% year-on-year slump in Chinese exports in July, which would follow a 12.4% slide in June and mark the worst reading since February 2020.

China’s July trade data top a heavy regional economic calendar on Tuesday, with current account, bank lending and household spending reports from Japan, current account data from South Korea and Australian consumer sentiment also on tap.

Chinese imports are also forecast to have fallen in July, by 5.0% year on year, although that would be less than the 6.8% rate of decline in June. But for the world’s manufacturing and factory engine, focus is on the alarming weakness in exports.

Chinese factory activity fell for a fourth straight month in July, further depressing the outlook for growth and increasing pressure on Beijing to inject substantial stimulus. The services and construction sectors are also teetering on the brink of contraction.

Citi’s Chinese economic surprises index remains deeply negative, but has crept up off its lows recently. At -54.7, it is at its ‘highest’ level since June 30, but will soon be heading lower again if Tuesday’s trade data disappoint.

Looking at markets and risk appetite more broadly, the trading week got off to a solid start on Monday as investors swatted away another rise in U.S. Treasury yields and a steepening of the yield curve.

The curve steepening was again led by a selloff at the long end and spike higher in long-dated borrowing costs, but was less aggressive than some recent moves. Investors were also heartened to hear New York President John Williams say interest rates could begin to come down early next year.

The S&P 500 and Nasdaq snapped a four-day losing streak, and the Dow jumped more than 1%. Equity and currency market volatility eased back on Monday although bond market volatility was more resilient.

On the corporate front on Tuesday, Japan’s Softbank Group is expected to report a profit of 75 billion yen ($525 million) for the April-June period, marking a return to profit after two consecutive years of losses.

Nikon and Mazda are among the raft of Japanese companies also publishing results on Tuesday as the reporting season picks up pace.

Here are key developments that could provide more direction to markets on Tuesday:

– China trade (July)

– Japan current account, bank lending, household spending (June)

– Australia consumer sentiment (July)

(By Jamie McGeever)