Asian Markets Outlook

By Jamie McGeever

As a degree of calm descends on South Korean markets, for now at least, Asia is set for a positive open on Thursday as investors draw encouragement from another record high on Wall Street and U.S. bond yields falling to the lowest in a month.

Federal Reserve Chair Jerome Powell's upbeat remarks on Wednesday – that the U.S. economy is in "remarkably" good shape and he feels "very good" about U.S. monetary policy – will support investor sentiment and risk appetite.

The S&P 500 rose for a fourth day on Wednesday for its 55th record high this year, having fallen only once in the last 12 trading sessions. The Nasdaq registered its second 1% gain this week.

U.S. bond yields declined across the curve, most notably at the short end where the two-year yield fell to 4.12%, the lowest since the U.S. presidential election on Nov. 5, signalling that this particular segment of the so-called "Trump trade" has fizzled out.

The fall in yields, partly fueled by surprisingly soft U.S. service sector data, was accompanied by a weaker dollar, offering relief for Asian and emerging markets.

Investors will also draw comfort from apparent financial stability in South Korea, despite a politically tense and fluid situation. The won has recovered most losses, and short-term implied won volatility has eased. However, Kospi futures still indicate a decline of more than 1% for local stocks at Thursday's open.

Meanwhile, market signals from China indicate relative calm in foreign exchange but weakness in stocks. The yuan rebounded from a 13-month low, achieving its biggest rise in a month, while weak service sector data and ongoing trade tensions with the U.S. pushed stocks lower.

The Australian dollar remains subdued after GDP data showed slower-than-expected economic growth in Q3. Nevertheless, the central bank's first rate cut is not fully priced in until April, as per interest rate swaps market assessments.

The calendar in Asia for Thursday includes the release of revised South Korean GDP data, inflation figures from Taiwan and the Philippines, retail sales from Singapore, and Australian trade numbers.

Amid political uncertainty in Seoul, consider that Asia's fourth-largest economy narrowly avoided a rare recession, contracting 0.2% in Q2 but rebounding 0.1% in Q3.

Key Developments for Thursday:

• Reaction to political developments in South Korea
• Fallout from the collapse of France's government
• Taiwan and Philippines inflation (November)