(Reuters) – A look at the upcoming day in Asian markets from Jamie McGeever
We anticipate an ugly opening in Asian markets on Monday as investors try to protect themselves from the fallout from the broad sell-off that hit stocks, bonds and currencies on Friday.
The historic collapse in British bonds and the British pound took center stage on Friday, but at the heart of the gloom surrounding global markets, the Fed’s drive to raise interest rates was much higher than most people bargained for, and the impact on global rates.
And the dollar.
The dollar’s “wrecking ball” situation is being painfully felt in Asia, where many currencies have plunged to multi-year lows or record lows, and central banks have stepped in to try to stop corruption.
On Friday, the Indian rupee hit a record low, the Indonesian rupiah fell to its weakest since mid-2020, the Thai baht fell to a 16-year low, and the South Korean won hit a 13-year low.
Falling currencies increase inflationary pressures, forcing policy makers to take a tougher stance, tightening financial conditions, and crushing demand. Central banks will find it difficult to break this cycle of doom.
Their pool of FX reserves for intervention purposes is also limited – even the Bank of Japan will realize that its $1.3 trillion stockpile won’t last forever if it often follows last week’s historic dollar-selling intervention.
Speaking of doomsday episodes, if Asian central banks sell off portions of their holdings of US Treasuries to prop up their local currencies, US yields rise, Treasuries are more attractive, investors pile up, and the dollar strengthens.
Economic and business calendars in Asia on Monday are light.
A batch of Japanese economic data, including retail sales and consumer confidence, and China’s September PMIs will give insight into the health of the region’s two largest economies at the end of the week.
India’s central bank announced its latest rate decision on Friday as well.
Key developments that could provide further guidance to the markets on Monday:
German Ifo (September)