Economy

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(Reuters) – A look at the day ahead in Asian markets. A hugely pivotal week for world markets begins with investors in Asia already bracing for volatile trading in Japanese assets on Monday after Prime Minister Shigeru Ishiba lost his parliamentary majority in the country’s general election.Ishiba’s Liberal Democratic Party has ruled Japan for almost all of its post-war history, so the initial market reaction to a political earthquake of this magnitude could trigger a selloff in the yen and Japanese stocks, and higher Japanese Government Bond prices.More broadly, the shockwaves could undermine the political stability and continuity many analysts say the Bank of Japan needs to conduct monetary policy. The BOJ sets interest rates on Wednesday.The BOJ’s decision is one of several key events this week that could go a long way to shaping market and investment trends for the rest of the year. Five of the ‘Magnificent Seven’ megacap U.S. tech giants release company earnings this week, and U.S. nonfarm payrolls for October will be released on Friday.Staying in Asia, purchasing managers index data this week will give the earliest insight into how economic activity across the continent held up in October, most notably in China. Is it too early for Beijing’s recent stimulus to have had any effect?Probably. And the market impact is understandably beginning to fade too. Chinese stocks inched up 0.8% last week, consolidating after a few rollercoaster weeks. Meanwhile, figures on Sunday showed industrial profits in China plunged 27.1% in September from a year earlier, the steepest fall this year. Asian stocks more broadly softened last week, with the MSCI Asia ex-Japan index down nearly 2%, the third weekly decline in a row. Japan’s benchmark Nikkei 225 index fell 2.7% for its second consecutive weekly loss as investors reduced risk exposure ahead of Sunday’s general election.Contrast that with the Nasdaq, which got a huge boost from Tesla (NASDAQ:TSLA)’s remarkable rally after its third-quarter earnings. The tech-heavy index rose for a seventh week in a row, and over the past year it has risen in all but 15 of the last 52 weeks. The S&P 500 dipped slightly, although it is still hugging the previous week’s all-time high, while the Dow Jones shed more than 2%. The emerging markets team at Barclays summed up the general mood pretty well: “The dollar is likely to remain on the front foot, and U.S. rates are likely to remain elevated, creating a somewhat painful backdrop for EM assets,” they wrote on Friday.But with so much event risk looming, not least the U.S. Presidential election on Nov. 5, there may be a limit to how high Treasury yields can go this week.Here are key developments that could provide more direction to markets on Monday:- Fallout from Japanese election- Hong Kong trade (October)- Thailand trade (October) More

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This tariff proposal, associated with policy discussions by U.S. political figures, represents an  increase over previous tariffs, which were approximately half as restrictive. A tariff of this magnitude could effectively price Chinese goods out of the U.S. market altogether, according to Citi’s analysis of the economic response during the 2018-2020 trade tensions.Citi identifies three critical impacts of this hypothetical tariff scenario on China’s economy. First, Chinese exports to the U.S., which represent 14.8% of China’s total exports and contribute nearly 2.8% to its GDP, would face severe reductions. Given the assumed passthrough of tariff costs to U.S. importers, the universal 60% tariff could result in higher prices, leading U.S. demand for Chinese products to drop dramatically. Under the framework Citi uses, each percentage increase in tariff could reduce U.S. imports from China by over 4%. In aggregate, this model implies an economic contraction equivalent to 2.4% of China’s GDP, underscoring the substantial headwinds China would face if such tariffs took effect.The economic fallout from such prohibitive tariffs would likely provoke a robust response from Chinese policymakers. Analysts speculate that China’s central bank, the People’s Bank of China, would prioritize stabilizing the yuan to curb additional financial volatility. Based on past trade dispute responses, Citi believes the PBoC might strategically allow controlled depreciation of the yuan if tariff tensions persist, estimating that the yuan could reach an exchange rate of about 7.7–8.0 per dollar. Citi’s economists also anticipate that China would expand domestic stimulus efforts, with a focus on demand-boosting policies and continued investment in technology sectors, in efforts to soften the anticipated economic slowdown. More

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TAIPEI/BEIJING (Reuters) -Taiwan’s defence ministry said on Sunday that Chinese warplanes and warships had carried out another “combat patrol” near the island, after Beijing threatened to take countermeasures in response to a $2 billion arms sale package by the United States.The United States is bound by law to provide Chinese-claimed Taiwan with the means to defend itself despite the lack of formal diplomatic ties, to the constant anger of Beijing.The Pentagon said on Friday the United States had approved a potential $2 billion arms sale package to Taiwan, including the delivery for the first time to the island of an advanced air defence missile system battle-tested in Ukraine.Taiwan’s defence ministry said it had detected 19 Chinese military aircraft, including Su-30 fighter jets, carrying out a “joint combat readiness patrol” around Taiwan in conjunction with Chinese warships starting on Sunday morning.It said the Chinese aircraft flew in airspace to the north, centre, southwest and east of Taiwan, and that Taiwanese forces were dispatched to keep watch.China’s defence ministry did not answer calls seeking comment outside normal office hours.China stages such patrols around Taiwan several times a month, but this was the first since Beijing held a new round of full-blown war games near the island this month. In a statement late on Saturday, China’s foreign ministry said it strongly condemned and firmly opposed the latest U.S. weapons sales and had lodged “solemn representations” with Washington.China urges the United States to immediately stop arming Taiwan and stop its dangerous moves that undermine peace and stability in the Taiwan Strait, it added.”China will take resolute countermeasures and take all measures necessary to firmly defend national sovereignty, security and territorial integrity,” the ministry said, without elaborating.China has over the past five years stepped up its military activities around democratically governed Taiwan, whose government rejects Beijing’s sovereignty claims.Taiwan’s government has welcomed the new arms sale, the 17th to the island under U.S. President Joe Biden’s administration.”In the face of China’s threats, Taiwan is duty-bound to protect its homeland, and will continue to demonstrate its determination to defend itself,” Taiwan’s foreign ministry said on Saturday, responding to the arms sale. More

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