Most Asian stock markets fell on Thursday, while currencies were mixed, hurt by growing concerns that US President-elect Donald Trump’s proposed policies could fuel inflation and slow interest rate cuts.
The MSCI index for emerging market shares CBOE:EFS fell 0.2%. Shares in Thailand fell 1.2%, while those in Singapore slipped 0.5% after hitting their highest level in more than 17 years on Wednesday.
CNN reported on Wednesday that Trump was considering declaring a national economic emergency to provide legal justification for a series of universal tariffs against allies and enemies.
US Federal Reserve officials worry that Trump’s tariff proposals, which include a 10% tariff on global imports and about 60% on Chinese goods, and plans to deport some immigrants could fuel inflation.
This raises expectations that the Fed will slow down interest rate cuts. Markets now expect only one rate cut of 25 bps in 2025, and see a roughly 60% chance of a second rate cut.
The threat of tariffs has led to a sell-off in global bond markets with the benchmark 10-year US Treasury yield hitting an eight-month high on Wednesday providing support for the dollar and adding pressure on Asian assets including currencies.
The yield on Indonesian government bonds with a tenor of 10 years (ID10YT=RR) rose to 7.214% and reached its highest level in more than 6 months.
“Ahead of Trump’s inauguration, markets will likely remain anxious about Trump’s first policy announcement, keeping pressure on Asian FX…” Maybank analysts said in a note.
“Even so, with sentiment likely to be volatile, any good news releases such as signs of improved US-China relations could provide some relief for Asian FX.”
The threat of tariffs on China, a major trading nation for Asian economies, adds to concerns about growth and deflation in the world’s second-largest economy, with recent data showing weakening demand, despite stimulus measures.
The Chinese yuan, which has been under selling pressure recently, stabilized at its lowest level in 16 months after the People’s Bank of China announced a record number of overseas yuan sales. Equities in Shanghai fell 0.3%.
The Indonesian rupiah weakened 0.3%, while the Thai baht and Taiwan dollar weakened.
The South Korean Won and Philippine Peso rose 0.2% each.
Markets now await the US jobs report on Friday for clues on the Fed’s policy outlook.
HIGHLIGHTS:
**Japan’s real wages in November fell for the 4th straight month as inflation weighed
** Chinese money is flowing overseas through Hong Kong mutual funds
** Thailand’s central bank is expected to cut interest rates by 50 bps in 2025, a bond market group said
Source: Reuters
