A look at the day ahead in European and global markets from Rae Wee
Asian markets struggled on Wednesday as traders pared back expectations for Federal Reserve interest rate cuts later this year and what that would mean for central banks globally.
The big shift in Fed expectations – first after a blowout U.S. jobs report and subsequently from Tuesday’s upside surprise on inflation – has seen market pricing for 2024 rate cuts fall from about 160 basis points at the end of last year to just under 90 bps currently.
That’s had a knock-on effect across the world, with traders expecting just one rate cut from the Reserve Bank of Australia this year instead of two previously.
The higher-for-longer U.S. rates outlook is also likely to limit the scope of any easing from central banks in emerging markets, some of which had hiked rates in a bid to defend their currencies against a towering dollar.
“The greater the delay, the more likely that U.S. dollar assertions and yield volatility will intensify FX risks and policy conundrum for EM Asia FX,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank, of the Fed’s expected rate-cuts.
Investors will now be wary of an upside surprise for UK inflation data due later on Wednesday, which would further diminish chances of divided policymakers at the Bank of England agreeing to rate cuts any time soon.
JAPAN WATCH
As the Nikkei cruises towards fresh highs and the yen weakens past the 150 per dollar level, it seems there is little to stop Japanese stocks from surpassing their 1989 peak.
The Nikkei tracked regional equities lower on Wednesday, but remained just over 1,000 points shy of the intraday high of 38,957.44 hit on Dec. 29, 1989.
A sliding yen is meanwhile back on the radar of Japanese authorities, as they stepped up their warnings against what was described as rapid and speculative yen moves.
Elsewhere, Indonesians headed to the polls on Wednesday to cast their votes for the country’s next leader.
Nearly 259,000 candidates are contesting 20,600 posts across 17,000 islands in the world’s biggest single-day election, but all eyes are on the presidency and the fate of incumbent Joko Widodo’s ambitious agenda after a decade in charge of the $1.3 trillion economy.
Key developments that could influence markets on Wednesday:
– UK inflation figures (January)
– Euro zone GDP flash estimates (Q4)
– Euro zone industrial production (December)
– Heineken NV FY 2023 Earnings Release
– BoE Governor Andrew Bailey appears before Lords Economic Affairs Committee
(Editing by Sam Holmes)
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