A Look at the Day Ahead in Asian Markets
By: Jamie McGeever
After U.S. and UK inflation figures eased the grip that the soaring dollar and global bond yields had on markets, investors may finally be granted some breathing room. Upbeat U.S. bank earnings and a ceasefire between Israel and Hamas will also support market sentiment on Thursday. While it’s too early to say if this marks a turning point, fixed income and emerging markets have been beaten down and were primed for a “good news” reversal.
The UK and US inflation numbers will drive markets, with the rapid slide in bond yields and jump in stocks paving the way for a positive day in Asia. Despite not altering the Fed’s direction or pace of rate cuts, the numbers take the heat off policymakers, buying them more time to assess their next steps. For investors, they triggered an instant reversal of bond selling, which had snowballed in recent weeks and started to bleed into equity markets.
Yields across the US Treasury curve posted their biggest one-day declines since November 25, and rates traders brought forward the next expected Fed rate cut to June from September. The impact on the dollar was muted, however, falling sharply against the yen but barely budging against the euro. This could be due to country-specific factors playing a greater role in setting exchange rates rather than solely U.S. yields and rate expectations.
Today, investors will keep an eye on key developments, including South Korea’s interest rate decision, the fallout from President Yoon’s arrest, and Australia’s December unemployment figures. Bank Indonesia’s surprise rate cut shows that consensus forecasts are not always a one-way bet. As a result, the BoK’s interest rate decision and the country’s volatile political situation could see a surprise 50 bps cut to try and boost growth and loosen financial conditions.
