The second quarter of the year started with a bang in the financial world as strong U.S. manufacturing data on Monday propelled the dollar and U.S. Treasuries to new heights. The dollar spiked to its highest level since November, and bond yields jumped as the ‘higher for longer’ Fed and U.S. economic ‘soft landing’ narratives took hold.
Despite this, Wall Street showed resilience, with the Dow falling 0.6% while the S&P 500 only shed 0.2% and the Nasdaq closed in the green. The question now is whether this resilience will offset higher yields and a stronger dollar to support risk appetite in Asia.
Asian markets will be closely watching the impact of the dollar’s ascent, as it broke above 105.00 on an index basis for the first time this year. The greenback’s momentum has been building, with hedge funds amassing their biggest net long dollar position since September 2022, mostly against the yen.
Chinese markets, on the other hand, started the week on a positive note after a private survey showed Chinese manufacturing activity expanded at the fastest pace in 13 months in March. Mainland Chinese blue chips rose 1.6%, outperforming other indices in the region.
Looking ahead, Asia’s economic and corporate calendar for Tuesday is light, with key reports including the latest Australian and Indian manufacturing purchasing managers index and South Korean consumer inflation data. Economists expect South Korea’s monthly inflation to slow in March, but with rates well above the Bank of Korea’s target, interest rates are likely to remain high for the foreseeable future.