US CPI smile fades, raining yen

US CPI smile fades, raining yen

Asian Markets

Asian Markets: Navigating the Post-Fed Landscape

[Aug 11 (ANBLE)] – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

Markets around the world are eagerly analyzing the ramifications of what has been deemed the Federal Reserve’s most aggressive rate-hiking campaign in over four decades. As the dust settles, and the initial jubilance fades, investors are left wondering “now what?”.

Wall Street initially rejoiced over U.S. inflation data that revealed underlying price pressures had significantly cooled the previous month. As a result, rates-futures markets confidently declared an end to the Fed’s tightening cycle. However, this optimism was short-lived as longer-dated Treasury yields rebounded, ultimately leading all three major indexes to close the day almost flat or slightly higher, erasing early gains of more than 1%.

Therefore, Asian markets are poised to open on Friday with a more subdued tone, as the loss of bullish momentum on Wall Street and the renewed ‘bear steepening’ of the U.S. yield curve unnerves some investors.

One of the key elements Asian investors will be paying close attention to is the status of the Japanese yen. On Thursday, the Japanese currency slid to a 15-year low against the euro. It also fell towards 145.00 per dollar, hovering around the level at which Japanese authorities heavily intervened last year. The depreciation of the yen illustrates the potential impact of yen movements on the broader Asian markets.

While the short end of the bond market appeared more stable, reflecting the belief that the Fed is finished raising rates, the long end of the Treasury curve experienced substantial selling pressure. Rising long-term yields are unlikely to support, let alone boost, risk appetite. This, coupled with the bear steepening of the U.S. yield curve, may add further hesitancy to investors already on edge.

In addition, notable market moves on Thursday included oil. Both West Texas Intermediate (WTI) and Brent crude closed down 1.7% and 1.3% respectively, putting the possibility of U.S. crude futures registering a seventh straight weekly gain in jeopardy.

Currency traders will also be on Japanese intervention alert given the yen’s recent decline. The dollar is currently hovering around 145.00 yen, closely resembling the level the Bank of Japan actively intervened in by buying vast amounts of yen late last year. The potential for further intervention adds another layer of uncertainty for Asian currency markets.

Shifting focus to India, the Indian rupee experienced its best day in the past month on Thursday. Moving further away from recent all-time lows, the central bank’s reported intervention helped stabilize the currency. The Reserve Bank of India, in their Thursday announcement, held interest rates steady but hinted at reducing the amount of cash in the banking system to counter inflationary pressures arising from high food prices.

Looking ahead to Friday, market participants eagerly await India’s industrial production data for June, expected to show a 5.0% year-on-year increase. Although slightly slower than the 5.2% growth witnessed in May, this data point can provide further insights into the Indian economy’s performance.

Lastly, several key developments shaping market direction on Friday include Hong Kong’s GDP for Q2, India’s industrial production for June, and the preliminary GDP data for Q2 from the United Kingdom.

Key Developments for Friday:

  • Hong Kong GDP (Q2)
  • India industrial production (June)
  • UK GDP (Q2, prelim)