Asian stock market: China, Japan data bring curtain down on H1

Asian stock market: Asian markets bring an eventful first half of the year to a close on Friday with investors bracing for a raft of top tier economic data, particularly from China and Japan, and digesting yet another leg-up in global interest rate expectations.

China's purchasing managers index reports will give a first glimpse into how the factory and services sectors in the region's largest economy fared in June, while Tokyo inflation is likely to be the most important of a batch of indicators from Japan that also includes unemployment and industrial output.

Key releases from South Korea, Asia's fourth largest economy, include retail sales, industrial output, and service sector growth for May.

The Chinese PMIs will come under particularly strong scrutiny. Contracting activity in manufacturing is being offset by expansion in services, but overall growth is weak and authorities are coming under pressure to step in with substantial monetary or fiscal stimulus. Or both.

The yuan is at a seven-month low and sliding toward a fresh 15-year trough against the dollar, trade with the rest of the world is falling, inflation is evaporating and growth forecasts are being slashed.

The pick of Japan's indicators looks like being Tokyo consumer inflation excluding fresh food prices for June, and what that might signal for monetary policy. Economists anticipate a tick up in the annual rate to 3.3 per cent from 3.2 per cent.

The Bank of Japan, like its Chinese counterpart, is swimming against the global tide of tighter policy, the main reason why the yen is also at a seven-month low against the dollar and fueling BOJ intervention speculation.

In fact, the yen is close to a 50-year low on a real effective exchange rate basis. With stocks hovering around 33-year highs and base rates still negative, financial conditions in Japan are the loosest since 1997, according to Goldman Sachs.

Goldman's emerging markets financial conditions index is the lowest in 16 months, which stands in contrast to developed economies where rates, bond yields borrowing costs of all stripes are rising sharply.

The U.S. two-year yield jumped 15 basis points on Thursday, its biggest rise in a month, and traders are now pricing in at least one more quarter point rate hike this year. Fed Chair Jerome Powell this week indicated he thinks two will be delivered.

The good news is rate expectations are being ramped up because the economy is strong. Thursday's U.S. data were unambiguously positive - a chunky upward revision to Q1 GDP growth and the biggest fall in weekly jobless claims since 2021 point to 'no landing', never mind a 'soft landing'

But growth and earnings will suffer at some point. The U.S. yield curve on Thursday inverted further to within a few basis points of the 40-year low seen in March. This is a warning sign that investors think something, somewhere, at some future point, will 'break'.

Here are key developments that could provide more direction to markets on Friday:

- China PMIs (June)

- Japan - Tokyo inflation (June)

- U.S. PCE inflation (May)