By Jamie McGeever
(Reuters) – A look at the day ahead at Asian markets from Jamie McGeever.
There’s a reason investors are warned not to fight the Fed, but sometimes they still have to learn the hard way.
When the second most powerful central bank in the world also rubs shoulders with the Fed, markets will undoubtedly get a nosebleed.
This is essentially what happened last week – a sea of red over Wall Street and world stocks after the Fed and European Central Bank hiked interest rates by 50 basis points, sending the clearest signals yet that they were far from done.
Of course, the Fed is closer to the end of its cycle of rate hikes than the ECB, which may be why interest rate markets continue to gamble on a pivot from Fed Chair Jerome Powell later next year, even though he’s adamant that there won’t be any. . .
Fears of a US recession and global growth slowdown intensified on Friday after the weakest US PMI data in more than two years was released. Earlier in the week, US retail sales and a slew of Chinese data also fell significantly short of forecasts.
And this is the economy where central banks around the world are still raising interest rates?
This sets the tone for the week in Asia, where the backdrop will be monetary policy decisions in Japan and Indonesia, the minutes of the latest RBA policy meeting and inflation data from Japan, Hong Kong, Malaysia and Singapore.
The BOJ is expected to keep its key lending rate at -0.10% and reaffirm its yield curve control commitment to limit 10-year government bond yields to 0.25%.
But in a notable departure from recent decades, hawkish voices within the BOJ are raising their voices just as Governor Haruhiko Kuroda’s term comes to an end in March.
The decision comes three days before November’s inflation figures are released. Annual core CPI inflation is expected to rise to 3.7% in November from 3.6% in October, a new 41-year high.
Japan Core CPI Inflation: https://fingfx.thomsonreuters.com/gfx/mkt/egvbyyjdopq/JapanCoreInflation.jpg
Japanese headline CPI inflation: https://fingfx.thomsonreuters.com/gfx/mkt/lgpdkkjynvo/JapanInflation.jpg
Indeed, Kyodo reported on Saturday that the Japanese government intends to revise a decade-old joint statement with the BOJ requiring the central bank to reach 2% inflation “as soon as possible”, thereby pushing ahead of its target of 2% inflation. becomes a more flexible target. .
Meanwhile, Bank Indonesia is expected to do its version of the Fed shuffle, cutting the rate hike rate to 25 basis points from three consecutive 50 basis point steps. Most analysts expect the seven-day reverse repo rate to increase from 5.25% to 5.50%.
A bloody year is coming to an end. Will there be a Christmas rally, even a mini rally, in the last week before Christmas?
Three key developments that could give markets more direction on Monday:
– German Ifo index (December)
– The Guindos of the ECB speaks
– US NAHB housing market index (December)
(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Diane Craft)