A Look at the Day Ahead in Asian Markets

By Jamie McGeever

Asian markets could be in for a rocky ride on Monday, as rising U.S. bond yields, a surging dollar, and a wobble on Wall Street on Friday call into question the wisdom of buying local assets.

Fed Chair Jerome Powell's comments on Thursday—that the central bank is in no rush to lower interest rates—continue to reverberate around world markets.

The 10-year U.S. Treasury yield on Friday hit 4.50% for the first time in over five months, and Wall Street fell. The Nasdaq lost more than 2% and has fallen four days in a row; the last time it did that was in April.

The MSCI World equity index has also fallen four days in a row, its longest losing streak since the first week of September, while the MSCI Asia ex-Japan index lost 4.35%, its biggest weekly decline since June 2022.

Emerging market investors are dealing with an extraordinary rally in the U.S. dollar. The dollar index last week leapt 1.6%, hit its highest in over a year, and recorded a seventh weekly rise in a row. It is due for a correction, but momentum is strong, making it challenging to counter.

Goldman Sachs's emerging market financial conditions index last week spiked to a three and a half month high.

Given the strong U.S. economic data, yields, and dollar, it's no surprise emerging markets are struggling. According to EPFR Global data, strategists at Barclays note that emerging market funds have now posted outflows for five weeks in a row, with significant bond fund outflows.

Asia's calendar on Monday is fairly light, with key highlights likely including New Zealand producer prices, Singapore's non-oil trade figures, Japanese machinery orders, earnings from Mitsubishi UFJ, and GDP data from Thailand.

Economists polled by Reuters expect Thailand's growth to accelerate to a 2.6% annual rate from 2.3% in the April-June period, which would be the fastest pace of growth in one and a half years.

The Thai baht has been one of the better-performing Asian currencies against the dollar this year, down only 1.3% year-to-date, and markets expect less than 50 basis points of Bank of Thailand easing by the end of next year.

Strained U.S.-Sino relations remain in the spotlight after China's President Xi Jinping told U.S. President Joe Biden that the issues of Taiwan, democracy, human rights, and development rights are "red lines" for China and should not be challenged. However, Xi also expressed readiness to cooperate with the new U.S. administration to maintain communication, expand cooperation, and manage differences.

Key Developments to Watch on Monday:

• Thailand GDP (Q3)
• Japan Machinery Orders (September)
• G20 Summit in Rio de Janeiro Begins