These dynamics could intensify later this week if U.S. inflation data for June undershoots analysts' already soft expectations. All else equal, this would be a tailwind for Asian stocks, bonds and currencies.
Several Fed officials on Monday said interest rates will have to rise further to contain inflation, but the end of the tightening cycle is in sight. AThere are no major economic, policy or corporate events on the Asian calendar on Tuesday, leaving investors to take their cue again from the outlook for U.S. rates, and Chinese growth and stimulus.
Sentiment toward Asian stocks in recent months has been mostly bearish, with the exception of Japan, but a pause in the selling on Monday lifted the gloom a little. Chinese and broader Asian stocks rose for the first time in four sessions, while the yuan and yen strengthened to two-week highs against the dollar.
The dollar's slide will cool speculation that Japanese authorities are poised to intervene to support the yen, and a steadier yuan will halt the spiral of a weakening currency, capital outflows and pressure on the central bank to intervene.figures on Monday were sobering. Annual consumer price inflation in June was zero and producer price inflation slumped to -5.4%, signaling the heaviest deflation since 2015.
Both readings undershot economists' expectations, triggering another slide in Citi's Chinese economic surprises index to a two-year low. The index has risen just four out of the last 60 trading sessions and is down 11 weeks in a row, its longest stretch of underperformance since 2010.
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