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By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
A lull in global bond selling took some wind out of the dollar’s sails and allowed stocks to regain their footing early Tuesday, but Wall Street’s faltering on inflation data from US could put Asian markets on the defensive again on Wednesday.
The weakening dollar and Treasury yields should provide some welcome respite for emerging and Asian markets. But the reversal in US stocks could ensure it is short-lived, especially with US CPI inflation numbers after the Asia close.
Asian markets were active on Tuesday. The MSCI Asia ex-Japan index rebounded from a five-month low and Chinese shares rose more than 2.5 percent as regulators promised more support for local chip companies and markets they recovered after the US stepped up its technology restrictions.
Japanese stocks reversed course, however, after Bank of Japan Deputy Governor Ryozo Himino signaled the possibility of a rate hike next week. The Nikkei 225 index posted its biggest drop in two and a half months, down 1.8%.
This is the regional local backdrop for Wednesday’s open, 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 on hold at 6.00%.
With inflation at the lower end of the central bank’s target range of 1.5%-3.5%, monetary policy is being aimed at stabilizing the rupee, which is down around 7% against the dollar from its peak in September.
Like most emerging countries, Indonesia has been hit hard by rising US bond yields and the dollar’s “wrecking ball,” a tightening of financial conditions that is constraining BI’s ability to ease the policy
According to Goldman Sachs, Indonesia’s financial conditions have deteriorated sharply since late September, mainly due to rising long-term rates and falling stocks. They are now the tightest since October 2023 and near the tightest since October 2022.
The threat of a global trade war and punitive US tariffs on many countries, particularly China, continue to weigh on market sentiment as the inauguration of US President-elect Donald Trump approaches. on January 20.
In a meeting with European Council President Antonio Costa on Tuesday, Chinese President Xi Jinping said China and the European Union have a strong “symbiotic” economic relationship and Beijing hopes the bloc can become “a reliable partner for cooperation”.
Meanwhile, Trump said Tuesday he will create a new department called the Foreign Revenue Service “to collect tariffs, duties and all revenues” from foreign sources.
