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Marketmind: Eyes on Japan GDP, China losing steam

A man uses a laptop, under an electronic board showing stock visualizations, inside a brokerage building, in Tokyo

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever.

Japan's first quarter GDP figures are the highlight for Asian markets on Wednesday, with the world's third-largest economy expected to have grown at its fastest pace in three quarters thanks to strong services sector spending.

A Reuters poll of economists estimates annualized GDP growth of 0.7% in the first three months of 2023, rising sharply from just 0.1% October-December and the fastest since the 4.7% of April-June 2022.

Markets would be forgiven for going into the release with a 'glass half-empty' attitude. Japan's economic data have undershot forecasts recently - Citi's Japanese economic surprises index is now negative and the lowest in four months.

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If indicators from Japan have been underwhelming, they've been alarming from China, the world's second-largest economy.

Another batch of Chinese economic data fell short of expectations on Tuesday, slamming Chinese financial assets and cementing the view that Beijing will have to inject fiscal or policy stimulus into the sputtering economy. Or both.

Industrial output and retail sales growth in April undershot forecasts while property investment fell again, fueling concerns about its outlook as both its domestic and export engines of growth remain underpowered.

The Chinese yuan slipped to its weakest level this year, nudging 6.98 per dollar and Chinese stocks resumed their recent losing streak, reducing the Shanghai composite's year-to-date gains to 6.5% and the blue chip index's YTD gains to 2.75%.

April house prices are out on Wednesday.

Tech giant Tencent reports Q1 earnings on Wednesday, following Baidu's profit- and revenue-beating Q1 results on Tuesday. Perhaps another bright spot on the corporate front will pierce the economic gloom.

Meanwhile, Hong Kong's stock exchange on Monday launched a new Connect scheme linking the financial hub with the mainland, offering offshore investors access to interest rate derivatives to help hedge their Chinese bond exposure. It will also help promote the yuan currency's global status.

The move comes after a sustained period of foreign investors dumping Chinese bonds. Since Russia invaded Ukraine in February last year demand for Chinese debt has evaporated, casting extra doubt over the yuan's ability to gain reserve currency status.

Asian markets on Wednesday won't be getting any boost from Wall Street after the three main indices closed in the red on Tuesday. The Dow and Russell 2000 are down for the year too.

U.S. debt ceiling talks loom large over markets. They hit another brick wall on Tuesday although there are signs that progress is being made and default can be averted.

U.S. President Joe Biden will return to Washington on Sunday immediately after the G7 summit to focus on debt ceiling talks, skipping planned visits to Australia and Papua New Guinea.

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

- Japan GDP (Q1)

- China house prices (April)

- Australia wage growth (Q1)

(By Jamie McGeever)