MORNING BID ASIA-Green light from financial conditions, FX calm

May 6 (Reuters) – A look at the day ahead in Asian
markets.

Investor sentiment in Asia is set to open the week on a positive
note on Monday, buoyed by last week’s upward momentum in global
stocks, calmer currency markets, and a general easing of
financial conditions.

The main regional calendar events include services PMI
figures from China and first-quarter GDP data from Indonesia,
while Chinese President Xi Jinping is in Paris for talks with
President Emmanuel Macron and European Commission President
Ursula von der Leyen.

Investors will be hoping the rise in risk appetite following
Federal Reserve Chair Jerome Powell’s relatively dovish steer on
the U.S. interest rate outlook on Wednesday continues into this
week.

Wall Street and the MSCI World index hit three-week highs on
Friday – S&P 500 had its best day since Feb. 22 – while the MSCI
Asia ex-Japan index climbed to its highest since February last
year.

Asian stocks’ trough-to-peak rise in the last two weeks has
been an eye-catching 8%.

U.S. earnings have, on the whole, been strong and company
guidance generally bullish, the Fed appears reluctant to raise
rates again and signs of softer economic data are keeping hopes
of rate cuts this year alive.

Global and emerging market financial conditions eased
significantly last week, and are now the loosest since March 22,
Goldman Sachs’s financial conditions indicators show.

Liquidity will be lighter than usual on Monday as London
markets are closed for a holiday. Could the Bank of Japan take
advantage and show its hand in the FX market?

The dollar plunged almost 5% against the yen last week on
the back of two suspected bouts of intervention from Japan, one
on Monday and one on Wednesday.

U.S. futures market data show hedge funds cut back their
historically high short yen positions in the week through last
Tuesday. That was probably accelerated by the yen’s surge, and
it is not unreasonable to think that some froth from the wider
bearish Asia/bullish dollar trade has come off too.

Indonesia’s GDP figures on Monday are expected to show the
economy grew at an annual rate of 5.00% in the first quarter, a
Reuters poll showed, slightly lower than Finance Minister Sri
Mulyani Indrawati’s forecast of 5.17%.

But seasonal factors are expected to mean GDP shrank 0.89%
from the previous three months.

Indonesia’s central bank last month delivered a surprise
rate hike in a bid to support the rupiah which had fallen to a
four-year low. Bank Indonesia’s 7-day reverse repurchase rate is
now 6.25%, the highest since it became the main policy rate in
2016.

On the political and diplomatic front, China’s Xi Jinping is
in Europe – his first visit to the continent in five years – and
trade is high on the agenda, with France’s Macron set to urge Xi
to reduce trade imbalances.

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

– China Caixin services PMI

– Indonesia GDP (Q1)

– Chinese President Xi Jinping visits Europe

(Reporting and Writing by Jamie McGeever; Editing by Diane
Craft)