Asian Markets Prepare for Volatility Ahead of US Inflation Data
As the global bond market takes a breather, the US dollar’s momentum slows, and equities regain their footing. However, with US inflation data on the horizon, Asian markets may be in for a bumpy ride on Wednesday.
A Temporary Reprieve
The easing of Treasury yields and the dollar’s decline should bring some much-needed relief to emerging and Asian markets. But with US stocks wavering ahead of the inflation report, this respite may be short-lived.
Asian Markets Rebound
On Tuesday, Asian markets showed signs of life, with the MSCI Asia ex-Japan index rebounding from a five-month low. Chinese blue-chip stocks surged over 2.5% as regulators pledged support and local chip firms rallied following the US tech curbs. However, Japanese stocks bucked the trend, plummeting 1.8% after Bank of Japan Deputy Governor Ryozo Himino hinted at a possible rate hike next week.
Bank Indonesia’s Policy Decision
On Wednesday, all eyes will be on Bank Indonesia’s policy decision. With inflation within the central bank’s target range, the focus is on stabilizing the rupiah, which has lost around 7% against the dollar since September. The main interest rate is expected to remain unchanged at 6.00%.
Indonesia’s Financial Conditions
Goldman Sachs reports that Indonesia’s financial conditions have deteriorated sharply since late September, mainly due to rising long rates and declining equities. This tightening of financial conditions is restricting the central bank’s ability to ease policy.
Global Trade War Fears
The looming threat of a global trade war and punitive US tariffs continues to weigh on market sentiment. Chinese President Xi Jinping emphasized the importance of a “symbiotic” economic relationship with the European Union, while US President-elect Donald Trump announced plans to create a new department to collect tariffs and duties from foreign sources.
Key Developments to Watch
Wednesday’s key events include:
- Indonesia interest rate decision
- South Korea unemployment (December)
- Japan services tankan survey (January)
These developments could provide further direction to markets on Wednesday, as investors navigate the complex landscape of global trade and economic uncertainty.
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