Asian markets could be in for a choppy ride on Tuesday, with investors unsure whether to interpret Monday's steep fall in U.S. Treasury yields and the dollar as an encouraging sign for risky assets or a warning that growth is evaporating.
The sugar high of rate cut expectations can only last so long. And in truth, rate cut expectations have not shifted all that much lately because inflation remains stickier than policymakers would like. Indian markets' initial reaction on Monday to the weekend's exit polls showing a decisive mandate and third term for Prime Minister Narendra Modi was overwhelmingly positive - shares hit lifetime highs, the rupee gained and bond yields dropped.The broader Nifty index closed 3.25% higher at 23,263.90 points after touching a record high 23,338.70 earlier in the day, while the BSE index closed up 3.39% at 76,468.78 points, just off its lifetime peak of 76,738.89 also touched earlier.
The Caixin survey is believed to be skewed more toward smaller, export-oriented firms, which may help explain why Asian stocks took off so much on Monday. Some of that optimism, however, may cool on Tuesday.
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