Author: Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
A pause in the global bond selloff took some wind out of the dollar and allowed stocks to regain their footing early on Tuesday, but Wall Street’s jitters ahead of US inflation data could put Asian markets back on the defensive on Wednesday.
A weakening dollar and Treasury yields should offer emerging and Asian markets a welcome respite. But a reversal in US stocks could ensure it is short-lived, especially with US CPI inflation numbers falling after the Asian close.
Asian markets were buoyant on Tuesday. The index rebounded from a five-month low and Chinese blue-chip shares jumped more than 2.5%, as regulators promised more support for markets and local chip companies rallied after the U.S. stepped up technology measures.
However, Japanese stocks moved in the opposite direction after Bank of Japan Deputy Governor Ryozo Himino flagged the possibility of a rate hike next week. It recorded the biggest drop in two and a half months, falling by 1.8%.
That’s the regional local backdrop to Wednesday’s opening, where the main local event will be Bank Indonesia’s policy decision. Spooked by recent currency volatility, BI is expected to keep its main interest rate at 6.00%.
With inflation at the lower end of the central bank’s target range of 1.5%-3.5%, monetary policy is aimed at stabilizing the rupee, which has fallen around 7% against the dollar since its peak in September.
Like most emerging economies, Indonesia has been hit hard by a spike in US bond yields and the dollar’s “wrecking ball”, tightening financial conditions that limit BI’s ability to ease policy.
According to Goldman Sachs, financial conditions in Indonesia have deteriorated sharply since late September, mainly due to rising long-term rates and falling stocks. They are now tightest since October 2023 and close to tightest since October 2022.
The threat of a global trade war and punitive US tariffs on many countries – especially China – continue to weigh on market sentiment as US President-elect Donald Trump’s inauguration on January 20 approaches.
In a meeting with European Council President Antonio Costa on Tuesday, Chinese President Xi Jinping said China and the European Union had a strong “symbiotic” economic relationship and that Beijing hoped the bloc could become a “reliable partner for cooperation”.
Meanwhile, Trump said Tuesday he would create a new department called the External Revenue Service “to collect tariffs, duties and all revenue” from foreign sources.
South Korea’s won has been one of Asia’s best-performing currencies this year, but could fall on Wednesday after Yonhap reported that authorities investigating impeached President Yoon Suk Yeol were at his official residence to execute an arrest warrant.
Here are key developments that could provide more direction to markets on Wednesday:
– Decision on the interest rate in Indonesia
– Unemployment in South Korea (December)
– Survey of tankan services in Japan (January)
