Most Asian stocks, currencies gain; US inflation data on tap
MOST emerging Asian currencies and equities posted modest gains on Thursday, with the South Korean won leading gains, as traders keenly awaited U.S. inflation data for clues on the Federal Reserve’s timeline on monetary policy easing.
The won appreciated as much as 0.6% against the U.S. dollar, while stocks in Seoul edged higher, after the South Korean central bank kept its benchmark rate unchanged and hinted it might pivot towards easing along with its global peers.
“The Bank of Korea (BOK) is not in any hurry to cut rates, but rising default risks and the potential damage to financial markets may eventually force their hand,” Min Joo Kang, a senior economist at ING said.
Broader market sentiment was buoyed ahead of key U.S. inflation data for December due later in the day, where a soft print could lift rate cut bets for March.
Currently, the CME’s FedWatch Tool is showing a 66% chance of a cut.
“An upside surprise to the CPI could lift the U.S. dollar as well as U.S. Treasury yields but we reckon bullish reversals will not last very long,” analysts at Maybank wrote.
While the market continues to expect 150 basis points (bps) of cuts by the Fed by December-end, Maybank analysts remain cautious about some fine-tuning of these expectations as the path towards lower inflation may still be bumpy in the coming months.
A dovish tilt by the U.S. Federal Reserve provides a respite to Asian central banks, with a downward trend in local inflation allowing them to begin considering their respective rate cut trajectories.
Bank Indonesia (BI) will meet on Jan. 16 to decide on its benchmark interest rates.
Analysts at DBS expect a “calibrated exit plan” with the central bank “exhibiting a lower urgency to lower rates to preserve financial stability”.
Bank Negara Malaysia and Bangko Sentral ng Pilipinas (BSP) are also set to meet on Jan. 24 and Feb. 15, respectively, to decide on their key interest rates.
The Philippine peso and the Thai baht ticked higher, while the Indonesian rupiah largely traded flat.
The baht depreciated as much as 0.7% on Wednesday as Prime Minister Srettha Thavisin raised concerns with the Bank of Thailand governor over high interest rates and economic conditions.
Galvin Chia, an emerging markets strategist at Natwest, said, “The tension has the potential to hurt sentiment around the Thai baht, and may prompt markets to price in lower interest rates”.
On Jan 7, Philippine Finance Secretary Benjamin Diokno told Bloomberg Television that he estimates the BSP could cut its benchmark rate by as much as 100 bps this year.
“Their rates are too high. In case these banks start cutting rates, and if FX markets are stable after the cuts, Bank Indonesia will likely follow the move,” Ryota Abe, an economist with Sumitomo Mitsui Banking Corporation said, referring to Thailand and the Philippines.
Stock markets in Manila jumped as much as 1.4% and led gains in the region, while shares in Jakarta added 0.5%.
Markets in Taiwan were trading higher ahead of a pivotal presidential and parliamentary election on Saturday that is being closely watched internationally at a time of heightened tensions with China.
** Japan’s Nikkei breaks 35,000 for first time in nearly 34 years
** Thai Dec consumer confidence at high of nearly 4 yrs on govt measures, tourism – Reuters