Asian markets gain momentum ahead of US inflation data

Most emerging Asian currencies and equities saw an upward trajectory on Thursday, with the South Korean won leading gains. Investors across the region are eagerly awaiting US inflation data, which is expected to provide crucial insights into the Federal Reserve's potential timeline for monetary policy adjustments.

The South Korean won saw an appreciation of up to 0.4 per cent against the US dollar, accompanied by a rise in stocks in Seoul. This surge followed the decision by the central bank to maintain its benchmark rate at 3.5 per cent, hinting at a possible shift towards easing, aligning with global trends. ING Senior Economist Min Joo Kang anticipates the first Bank of Korea rate cut in the second quarter of 2024, with inflation stabilizing around 2 per cent.

The broader optimism in the market is fuelled by anticipation of key US inflation data for December, set to be released later in the day. A softer print could boost expectations for a rate cut in March, with CME's FedWatch Tool currently indicating a 66 per cent chance of such a cut.

Maybank analysts caution that while the market expects a cumulative 150 basis points of cuts by the Fed by December-end, uncertainties in the path of inflation may lead to adjustments in these expectations. A dovish stance by the US Federal Reserve offers relief to Asian central banks, allowing them to consider potential rate cut trajectories against a backdrop of declining local inflation.

Looking ahead, Bank Indonesia is set to meet on January 16 to decide on benchmark interest rates, with DBS analysts expecting a "calibrated exit plan." The Indonesian rupiah and the Thai baht traded relatively flat, while the Philippine peso saw a slight uptick.

In Thailand, concerns were raised as Prime Minister Srettha Thavisin discussed high interest rates and economic conditions with the Bank of Thailand governor. This development led to a 0.7 per cent depreciation of the baht on Wednesday, prompting Natwest's Emerging Markets Strategist Galvin Chia to highlight potential negative impacts on sentiment and a possible market adjustment in interest rate expectations.

Manila emerged as a standout performer, with stock markets jumping up to 1.2 per cent, leading gains in the region. Jakarta's shares also added 0.4 per cent, while equities in Bangkok experienced a slight retreat of 0.3 per cent.

The MSCI Emerging Markets stocks index showed a 0.6 per cent increase, indicating a potential end to a four-day losing streak. Taiwan's markets were trading higher ahead of a crucial presidential and parliamentary election on Saturday, drawing international attention amid heightened tensions with China. Investors are closely monitoring these developments for their potential impact on regional dynamics.

(With Reuters inputs)