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Marketmind: Fed relief to juice risk appetite

A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

Asian markets are set to open higher on Thursday, lifted by Wall Street’s surge the day before as investors’ dovish interpretation of Fed chief Jerome Powell’s post-meeting press conference pushed U.S. Treasury yields to a two-week low.

The Asian and Pacific economic calendar on Thursday is light on quantity but fairly heavy on significance – South Korean inflation and Australian trade are the main indicators, while the policy highlight is the Malaysian central bank’s interest rate decision.

Investors will also continue to digest the fallout from the Bank of Japan’s decision to scrap its 1 per cent ceiling for the 10-year bond yield – on Wednesday the BOJ waded into the bond market, the yen recouped some ground after hitting a one-year low and the Nikkei leaped 2.4 per cent for its third best day of year.

Wednesday’s global market action should set the tone for Asia on Thursday. The MSCI World equity index rose just over 1 per cent, its best day since August while the Nasdaq jumped 1.6 per cent, its fourth rise in a row, for its best day since August too.

The 10-year Treasury yield plunged 14 basis points, its biggest fall since March.

While Powell kept the door open to further tightening, markets judged he was not quite as hawkish as he might have been. If that is still the prevailing mood in Asia on Thursday, markets across the continent should benefit.

Sentiment toward Chinese markets may be less bullish, however.

China’s short-term money rates have soared, notably among non-bank financial institutions, and overnight borrowing costs for some Chinese financial institutions have jumped to as high as 50 per cent as a month-end scramble for cash squeezed liquidity and stressed money markets.

On the economic front, China’s factory activity unexpectedly contracted in October, renewing concerns over the state of the country’s fragile economic recovery at the start of the fourth quarter, despite the better-than-expected third-quarter GDP figures a few weeks ago.

Uncertainty continues to swirl around the creaking property sector, where developer Evergrande has proposed a new debt restructuring plan for offshore bondholders, offering to swap their debts into about a 30 per cent equity stake in each of the developer’s two Hong Kong-listed subsidiaries.

In South Korea, figures on Thursday are expected to show annual inflation eased back to 3.60 per cent in October from 3.70 per cent, which would offer some relief to policymakers after it accelerated from July’s two-year low of 2.30 per cent.

Malaysia’s central bank is expected to keep its key interest rate at 3 per cent and through 2024, despite a weakening ringgit, amid stable domestic inflation and a steady growth outlook.

Inflation is currently 1.9 per cent, its lowest since March 2021 and far below the government’s estimate of 2.5 per cent to 3 per cent for this year, so the central bank has a bit of room to stay on hold, and wait and see.

Here are key developments that could provide more direction to markets on Thursday:

– Malaysia interest rate decision

– South Korea CPI inflation (October)

– Australia trade (October)

(By Jamie McGeever; Editing by Josie Kao)

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