By Jamie McGeever
(Reuters) – A have a look at the day ahead in Asian markets.
The Federal Reserve has spoken, and so far as investors are concerned, the message was clear – clearly hawkish. Now it’s over to the Bank of Japan and Bank of England, the 2 biggest and most significant of the clutch of central bank policy decisions on Thursday.
This recent burst of central bank meetings reaches its crescendo with decisions on Thursday also coming from Norway and Sweden, and more importantly from an Asian perspective, Taiwan and the Philippines.
Investors in Asia go into Thursday on the defensive after the Fed cut rates of interest by 1 / 4 of a percentage point as expected, but signaled a slower pace of easing ahead.
Fed officials raised their median projection of where they see the long term neutral rate, significantly raised their 2025 inflation outlook, and continued to sketch out a path of further rate cuts next 12 months.
Higher inflation coupled with continued easing is a circle Fed Chair Jerome Powell struggled to square in his press conference. And as he spoke with reporters, the selloff in stocks and Treasuries accelerated and the dollar soared even higher.
Wall Street ended the day sharply lower. The Nasdaq slumped greater than 3%, the Dow fell for a tenth day – its longest losing streak in 50 years – the dollar jumped to a two-year high and bond yields rose across the curve.
As Janus Henderson’s Dan Siluk noted, there’s potential for an “prolonged pause” next 12 months, and the Fed is indicating that “we’re in a structurally higher inflation and rates environment.”
Emerging market assets will almost definitely come under heavy pressure on Thursday.
All eyes in Asia now turn to Tokyo. The BOJ is predicted to maintain rates of interest on hold, leaving investors to take their cue from Governor Kazuo Ueda’s remarks in his press conference.
Japanese swap rates imply a 60% probability the BOJ will raise rates by 25 bps in January, down from around 70% a few weeks ago. 1 / 4-point hike just isn’t fully priced until May, and only 45 bps of tightening in total is predicted by December, the swaps curve shows.
The Philippine central bank is predicted to chop its key policy rate by 1 / 4 point to five.75%, in keeping with a Reuters poll, with inflation under control and the economy weakening.
Despite inflation rising for a second month in November to 2.5%, it’s well inside the central bank’s 2%-4% goal. This is able to be its third cut in a row, and economists expect an extra three reductions next 12 months.
Policymakers in Taiwan, meanwhile, are expected to maintain the important thing policy rate unchanged at 2% and hold it there throughout next 12 months given the strong economy and inflation concerns.