Asian Markets Set to Rise After Fed’s Dovish Stance
Asian markets are poised to open with gains on Thursday, taking cues from a surge on Wall Street the previous day. Investors’ interpretation of Federal Reserve Chief Jerome Powell’s post-meeting press conference as dovish led to a drop in U.S. Treasury yields, which hit a two-week low.
Economic Calendar Highlights
The Asian and Pacific economic calendar for Thursday, while light on the quantity of data, carries significant events. Notable indicators include South Korean inflation and Australian trade figures. The highlight of the day is the interest rate decision from Malaysia’s central bank.
Bank of Japan’s Bold Move
The fallout from the Bank of Japan’s decision to eliminate its 1% ceiling for the 10-year bond yield continues to reverberate. The BOJ’s foray into the bond market caused the yen to recover from a one-year low, and the Nikkei surged by 2.4%, marking its third-best day of the year.
Global Market Action
Wednesday’s global market action is expected to set the tone for Asia on Thursday. The MSCI World equity index posted a gain of just over 1%, its most substantial increase since August. Additionally, the Nasdaq soared by 1.6%, marking its fourth consecutive rise and the best day since August.
Sharp Drop in Treasury Yields
The 10-year Treasury yield experienced a significant 14-basis point decline, marking its most substantial drop since March. While Jerome Powell left the door open for future tightening, market sentiment suggested that he was less hawkish than anticipated.
Uncertain Sentiment in Chinese Markets
While Asia is poised for positivity, sentiment toward Chinese markets may be less bullish. Short-term money rates in China, especially among non-bank financial institutions, have surged. Some Chinese financial institutions are experiencing overnight borrowing costs as high as 50%, resulting from a month-end cash squeeze that has constrained liquidity and strained money markets.
China’s Economic Challenges
On the economic front, China’s factory activity unexpectedly contracted in October, raising concerns about the country’s fragile economic recovery at the start of the fourth quarter, despite better-than-expected third-quarter GDP figures.
Ongoing Uncertainty in the Property Sector
Uncertainty continues to swirl around China’s ailing property sector. Developer Evergrande has proposed a new debt restructuring plan for offshore bondholders, suggesting a swap of their debts for approximately a 30% equity stake in each of the developer’s two Hong Kong-listed subsidiaries.
Key Developments for Thursday
- Malaysia’s central bank interest rate decision
- South Korea’s CPI inflation for October
- Australia’s trade data for October
Malaysia Expected to Maintain Interest Rates
Malaysia’s central bank is expected to hold its key interest rate at 3% throughout 2024, despite the weakening ringgit. This decision comes in the context of stable domestic inflation and a steady growth outlook. Inflation currently stands at 1.9%, its lowest level since March 2021, well below the government’s estimated range of 2.5% to 3% for the year, providing room for the central bank to adopt a wait-and-see approach.
In conclusion, the dovish stance of the Federal Reserve has injected optimism into Asian markets, with notable events and data releases likely to influence market direction in the region on Thursday.
