Investors in Asia are approaching Thursday’s trading session with caution as a late slide on Wall Street overshadowed earlier positive figures indicating a further cooling of global inflationary pressures. Key economic and policy highlights in the region for the day include the Indonesian central bank’s policy decision, consumer price inflation and trade figures from Hong Kong, as well as producer price inflation data from South Korea.
Despite global figures showing a decline in inflation, the United Kingdom experienced a far steeper decline in inflation last month than expected. This drop in UK inflation caused gilt yields to plummet on Wednesday and strengthened the growing belief that major central banks will have ample room to cut interest rates in the coming year. Additionally, the US saw a surge in consumer confidence to a five-month high, fueling optimism in the market. However, the global risk rally came to a halt during the last hour of trading on Wall Street, leading to a sharp reversal. As a result, world stocks, which had been on a 10-day winning streak and on track to achieve their longest winning streak in almost three years, slumped 0.7% and experienced their largest decline in two months. Similarly, the three main US indexes, which had been hovering near record highs for the week, recorded their largest daily losses since October.
If the negativity from Wall Street spills over into Asia on Thursday, it is likely that the underperformance of emerging market and Asian markets, particularly Chinese markets, will continue. The Shanghai blue chip CSI 300 index already fell more than 1% on Wednesday and is heading towards its sixth consecutive weekly loss, marking its worst weekly run in the past 12 years and its fifth consecutive monthly loss. The overall economic outlook remains challenging, with deflation setting in, the property sector facing significant challenges, and the growth forecast remaining uncertain.
In contrast to other regions, the inflation situation in Hong Kong appears to be different. Consumer price inflation in the region has been on the rise, reaching a year-high of 2.7% in October. Moreover, the month-on-month rate increased to a two-year high of 1.0%. Economists surveyed by Reuters predict that inflation in November will hold steady at 2.7%. This inflationary trend in Hong Kong sets it apart from other markets in the region.
Bank Indonesia is expected to maintain its benchmark seven-day reverse repo rate at 6.00% for the second consecutive month. Consumer price inflation in the country has remained within the central bank’s target range of 2% to 4% for the past six months, and the Indonesian rupiah has appreciated nearly 2% since a surprise rate hike in October, easing pressure on imported prices. Economists surveyed indicate that the first rate cut is expected to occur in the third quarter of 2024. However, with inflation under control, the rupiah strengthening, and the US Federal Reserve projected to commence rate cuts in the near future, Bank Indonesia may choose to act before the projected timeline.
Asian investors are entering Thursday’s trading session prepared for defensive trading due to the late slide on Wall Street. The recent decline in UK inflation and the surge in US consumer confidence have created contrasting views on global inflation and future interest rate cuts. If negative sentiment persists in Asian markets, the ongoing underperformance of Chinese and emerging markets is anticipated. On the economic front, Hong Kong has experienced inflationary pressures while Bank Indonesia is likely to maintain its current interest rate amidst controlled inflation and a strengthening currency.