Big dollar, lower bond yields, Wall Street on the march

A big dollar drop, historically low volatility, lower bond yields, and Wall Street on the march with the S&P 500 joining the Nasdaq in bull market territory, are forecasted on Thursday's worldwide market moves as a strong end to the week in Asia on Friday.

Any optimism could be punctured by inflation data from China. If they are consistent with other indicators that show Asia's biggest economy is sputtering, China's stocks, bonds and currency may come under renewed heavy pressure.

Consumer prices are expected to drop 0.1 per cent in May and increase 0.3 per cent year-on-year. The CPI report in April showed that Beijing's economic activity and growth could not support the threat of deflation, highlighting Beijing's greatest challenge to stimulate enough economic activity and growth to overcome the threat of deflation.

It is proving to be a major headache - outright producer price deflation is expected to have intensified in May, with the annual rate of price falls accelerating to 4.3 per cent, according to a Reuters poll. The PPI decline has been the fastest since March 2016 - at the fastest rate in the last three months.

China's yuan has been sliding to fresh 2023 lows almost daily for the past three weeks, but the main stock indexes have followed a similar pattern, but it's a different story elsewhere.

Japan's economy grew much faster than previously thought in the January-March period, as a post-pandemic pickup in domestic spending and company restocking offset the impact on exports from slowing global demand.

Japan's yen rallied strongly, along with a weak U.S. employment indicators to its best day in a month. The dollar's depreciation dipped more than significantly, sank Treasury yields, and cooled Fed rate hike expectations.

It's usually a healthy mix for risk appetite, and so it proves on Thursday. Both the MSCI World index and MSCI Asia ex-Japan indices are course for their second consecutive weekly rise, something that neither has managed since March, and Wall Street has surged.

The main measure of the U.S. stock market volatility is at a pre-pandemic low, and expected global FX volatility is its lowest in over a year. That should give Asian markets the platform for a positive day on Friday.

Three key developments could provide more direction to the markets on Friday.