Yen-Nikkei link intensifies as US yields, dollar spike

October 22 – A look at the day ahead in Asian markets.

Asian markets will be hoping to recover from Monday’s fairly weak start to the week on Tuesday, with Japanese shares in particular well placed to move up a gear or two after the yen fell to its lowest level in almost three months .

The dollar jumped nearly 1% to 150.90 yen, its highest level since Aug. 1. That was the most notable aspect of the greenback’s broad rise on Monday, which was at its strongest against a basket of major currencies in nearly three months.

The yen’s correlation with Japanese stocks has turned deeply negative over the past month or so, meaning stocks rise when the yen weakens, and vice versa.

The simple rolling 25-day correlation between the dollar/yen and the Nikkei 225 index is now at its most inverted since 2005. On that basis, the latest decline in the yen should mean gains for the Nikkei, right?

However, a surge in the dollar is not good news for emerging markets, especially when coupled with a rise in Treasury yields. And US bond yields are rising.

The 10-year yield rose 11 basis points to a three-month high of 4.19% on Monday. Worried about inflation? Worried about debt and losses? Worried about elections? strong growth? Whatever the mix, it is the tightening of financial conditions that is often a danger signal for emerging markets.

According to Bespoke Investment Group, the Fed has cut rates 35 times since 1994, with the most recent cut resulting in a rise of more than 50 bps in 10-year yields, the third largest.

Chinese markets have had a positive start to the week after the People’s Bank of China cut benchmark lending rates by 25 bps and Beijing flagged off new measures to support innovative tech companies.

However, export figures from Taiwan were a reminder of China’s economic plight. Export orders fell lower than expected in September due to a decline in demand from top trading partner China.

Tuesday’s calendar in Asia is light, with Hong Kong consumer inflation, South Korean producer price inflation and New Zealand trade the highlights.

Pipeline price pressure in South Korea appears to be decreasing rapidly. The annual PPI fell to 1.6% in August from 2.6% in July – the sharpest monthly decline since May last year – and the monthly PPI has been negative in two of the last three months.

The October meetings of the International Monetary Fund and the World Bank are underway in Washington, with finance ministries and central bank officials from around the world coming to the US capital to discuss economic and policy issues.

There will be a flurry of press conferences, panel discussions and bilateral meetings in the coming days, which will undoubtedly generate market-shaking headlines.

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

– Hong Kong consumer price inflation

– South Korea producer price inflation

– Karen Silk, Assistant Governor of the Reserve Bank of New Zealand, speaks

This article was generated from an automated news agency feed without any modifications to the text.