A worker is reflected in a wall of the Reserve Bank of Australia (RBA) headquarters in central Sydney, Australia, March 1, 2016. REUTERS/David Gray/File Photo ACKNOWLEDGE RIGHTS
Dec 5 (Reuters) – A look at the day ahead in Asian markets.
A rate decision in Australia and key inflation data from Japan and South Korea are the big market events for the Asia-Pacific region on Tuesday, with investor sentiment cooled by Monday's sell-off in US stocks and bonds.
Currencies are likely to be most sensitive to the Reserve Bank of Australia's data and guidance, while equities could struggle to make much headway amid broad weakness in global equities on Monday.
The relative weakness of Asian equities since the pandemic, compounded by the even more pronounced underperformance of China, is something quite special. But international investors don't seem to be in a hurry to get back in en masse.
Meanwhile, the RBA is expected to keep its key interest rate at a 12-year high of 4.35%, according to 28 of 30 analysts polled by Reuters. The other two are seeking a 25 basis point increase.
Assuming the RBA holds firm, Gov. Michele Bowman's leadership will carry even greater weight. She was generally more aggressive than her predecessor, Philip Lowe, whom she replaced in September.
The Australian dollar rose to a new four-month high of $0.6690 on Monday before closing the day lower.
Meanwhile, the Japanese yen will be sensitive to the latest inflation figures in Tokyo. Core consumer inflation in Japan's capital is expected to have risen in November, but at a slower rate than the previous month, a sign that price pressures may be easing.
The annual inflation rate is expected to have fallen to 2.4% from 2.7% – providing respite for the Bank of Japan and potentially more selling pressure on the yen.
The U.S. dollar rose 0.5% against a basket of major currencies on Monday, helped by a rebound in U.S. bond yields, as traders took some profits from last week's strong rally in fixed income, particularly at the short end of the curve.
Last month's collapse in bond yields weighed heavily on the dollar, which appears to have forced hedge funds and speculators into action – their $10 billion long dollar position a few weeks ago was almost completely unwound.
If speculators forego dollars from here, Asian currencies could benefit. The current relative US interest rate outlook fits the weaker dollar narrative – in futures markets, the Fed will cut interest rates more than any other major central bank or emerging market central bank next year.
But will the Fed cut rates by 125 to 150 basis points next year? Maybe, but it sounds pretty aggressive. And even if the Fed goes that far, other central banks will certainly cut interest rates more than markets are currently predicting.
Here are key developments that could give markets more direction on Tuesday:
– Interest rate decision for Australia
– Japan – Tokyo Inflation (November)
– Inflation in South Korea (November)
By Jamie McGeever Editing by Josie Kao
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