A Pause in Global Bond Selloff Eases Dollar’s Gains, Asian Markets Rebound
A pause in the global bond selloff took some wind out of the dollar’s sails, allowing equities to regain their footing early on Tuesday. However, Wall Street’s wobble ahead of U.S. inflation data could put Asian markets back on the defensive on Wednesday.
The dollar and Treasury yields losing steam should offer emerging and Asian markets some welcome respite. But the reversal in U.S. stocks could ensure it is short-lived, especially with U.S. CPI inflation numbers landing after Asia has closed.
Asian markets were buoyant on Tuesday, with the index rebounding from a five-month low and blue chip Chinese stocks leaping more than 2.5% after regulators pledged more support for markets and local chip firms rallied after the U.S. stepped up its tech curbs. Japanese stocks, on the other hand, went the other way, slumping 1.8% after Bank of Japan Deputy Governor Ryozo Himino flagged the chance of a rate hike next week.
The main local event on Wednesday will be Bank Indonesia’s policy decision, with the bank widely expected to keep its main interest rate on hold at 6.00%. The bank is directing its monetary policy towards stabilizing the rupiah, which is down around 7% against the dollar from its September peak.
Indonesia has been hit hard by spiking U.S. bond yields and the dollar “wrecking ball,” a tightening of financial conditions that is restricting the bank’s ability to ease policy. According to Goldman Sachs, Indonesia’s financial conditions have deteriorated sharply since late September, mainly due to the rise in long rates and decline in equities. They are now the tightest since October 2023 and close to the tightest since October 2022.
The threat of a global trade war and punitive U.S. tariffs on many countries, especially China, continues to weigh on market sentiment as U.S. president-elect Donald Trump’s January 20 inauguration draws closer. Chinese President Xi Jinping said on Tuesday that China and the European Union have a robust “symbiotic” economic relationship and Beijing hopes the bloc can become “a trustworthy partner for cooperation.”
Meanwhile, Trump announced on Tuesday that he will create a new department called the External Revenue Service “to collect tariffs, duties, and all revenue” from foreign sources. South Korea’s won is one of the best-performing Asian 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.
Key events that could provide direction to markets on Wednesday include Indonesia’s interest rate decision, South Korea’s unemployment figures for December, and Japan’s services tankan survey for January.
