Asian financial markets showed mixed movements early on Tuesday, as a pause in the global bond selloff alleviated some pressure on the U.S. dollar and helped equities find some stability. However, Wall Street’s struggles and uncertainty ahead of the upcoming U.S. inflation data raised concerns that Asian markets may retreat again by Wednesday.
The dip in U.S. Treasury yields and a weakened dollar offered a brief period of relief for emerging and Asian markets, giving them a temporary chance to recover. But the reversal in U.S. stocks is expected to limit the respite, particularly as U.S. Consumer Price Index (CPI) data, set to be released after Asia’s trading hours, looms large.
In early Tuesday trading, Asian markets were generally buoyant. The MSCI Asia ex-Japan index saw a recovery from its five-month low, and major Chinese stocks surged by over 2.5%. The rally was fueled by renewed promises of regulatory support and a boost to local tech companies, especially following the tightening of U.S. technology restrictions. In contrast, Japan’s market experienced a downturn after Bank of Japan Deputy Governor Ryozo Himino hinted at a potential interest rate hike next week. This spooked investors, leading to the Nikkei 225 index recording its largest drop in over two months, falling by 1.8%.
Looking ahead to Wednesday, the key event in the region will be Bank Indonesia’s (BI) policy decision. Amid recent currency instability, BI is expected to maintain its benchmark interest rate at 6.00%. With inflation remaining at the lower end of the bank’s target range of 1.5%-3.5%, the central bank is focusing on stabilizing the Indonesian rupiah, which has depreciated by approximately 7% against the U.S. dollar since its September high.
Indonesia, like many emerging economies, has been severely affected by rising U.S. bond yields and the strengthening of the dollar. These factors have contributed to tighter financial conditions, limiting BI’s ability to adjust monetary policy. According to Goldman Sachs, financial conditions in Indonesia have worsened significantly since late September, now reaching levels not seen since October 2023 and approaching the tightest since October 2022.
Meanwhile, global market sentiment remains weighed down by the ongoing trade tensions and looming uncertainty around U.S. tariffs, particularly as the inauguration of President-elect Donald Trump approaches. On Tuesday, Trump announced plans to establish a new agency, the External Revenue Service, to collect tariffs and other revenues from foreign sources. Chinese President Xi Jinping, meeting with European Council President Antonio Costa, emphasized the strong economic ties between China and the European Union, calling the bloc a “trustworthy partner for cooperation.”
In other news, South Korea’s won has been one of the best-performing Asian currencies this year, but it may face downward pressure after news broke that authorities had executed an arrest warrant at the official residence of impeached President Yoon Suk Yeol.
The market’s outlook remains uncertain, with key economic events and geopolitical tensions adding volatility to the region’s financial landscape.
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