A preview of the day ahead in Asian markets.
Investors in Asia wake up Thursday to a global market landscape redrawn by Donald Trump’s resounding victory in the U.S. election, which propelled Wall Street to new highs and triggered a huge surge in the dollar and U.S. bond yields.
Any appetite for risk-on trades in sympathy with the rally in US stocks will be largely offset, if not completely wiped out, by the tightening of financial conditions due to rising Treasury and dollar yields.
Emerging market currencies fell broadly in Wednesday’s global session – the Mexican peso lost as much as 3% before recovering – and Asian exchange rates could come under heavy selling pressure on Thursday also.
Depending on the speed and depth of the fall, some central banks may feel compelled to intervene. The central banks of India and Indonesia, for example, have already intervened in the foreign exchange market this year to support their weak currencies.
At one point earlier in the day on Wednesday, the U.S. dollar rose almost 2% based on an index, which would have been its biggest one-day gain since June 24, 2016 – the next day of the Brexit referendum, which caused the pound sterling to fall.
The dollar regained some gains and Treasuries recouped some of their heavy losses late Wednesday as the sharp rise in yields attracted strong demand at a 30-year bond auction.
On Thursday, will Asian investors stick with so-called “Trump trades” – bets on increased federal spending, deficits and inflation, as well as ‘to greater deregulation, or will they show restraint and wait for more attractive levels to re-enter the market?
Among the biggest moves of Wednesday’s session, bitcoin rose nearly 10% to a record $75,459 as investors bet on the Trump administration implementing policies that will help shore up the place cryptocurrencies in the financial ecosystem.
As if the tumult of the US elections were not enough, the Federal Reserve announces its decision on interest rates on Thursday, following a two-day meeting. This could prompt investors to reduce their risk exposure and trade more defensively on Thursday.
The first full day of trading in Asia after Trump’s victory will see the release of data on China’s trade and foreign exchange reserves.
China has been the main target of Trump’s fiery rhetoric on global trade and how the United States has suffered from Beijing’s unfair practices. He said imports from China would face tariffs of 60% or more.
Official figures on Thursday are expected to show export growth accelerated in October to an annual rate of 5.2%, boosted by heavy discounts, while imports likely contracted by 1.5%, according to a Reuters poll.
Thursday’s agenda also includes the latest Australian trade figures, GDP data from the Philippines and second quarter results from Nissan in Japan.
Here are the main developments that could move the markets on Thursday:
– Reaction to the US presidential election
– Trade with China (October)
– GDP of the Philippines (Q3)
