Marketmind: U.S. bond yields, dollar turn the screw on Asia

4:03 pm Wednesday, August 24th, 2022

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever

An interest rate decision in South Korea grabs the spotlight in Asia on Thursday, as wider market sentiment continues to be clouded by rising U.S. bond yields, a buoyant dollar and deepening concern over China’s economy.

South Korean won vs US dollar: https://tmsnrt.rs/3CsAhKm

With inflation near its highest in 24 years, the Bank of Korea is expected to raise its base rate a quarter percentage point to 2.50%. A bolder move to 2.75% would put a rocket under the won and lift it from this week’s 13-year lows against the dollar.

China is going the other way. Not only is Beijing cutting interest rates, Reuters exclusively reported on Wednesday that China’s foreign exchange regulator is warning banks against aggressively selling the Chinese currency.

This would be a new sign of official discomfort with recent weakness of the yuan, which is languishing at a two-year low against the dollar.

Due to the greenback’s broad strength – including against most Asian currencies, – the steady grind higher in U.S. bond yields and renewed weakness in equities, financial conditions in emerging markets are beginning to tighten again.

The 10-year Treasury yield hit a two-month high of 3.12% on Wednesday, and the S&P 500’s rise of around 0.5% was pretty weak considering it had fallen 3.5% over the past three sessions.

On the corporate front, Asia-focused insurance group AIA releases half yearly earnings, while attention could turn to shares in India’s NDTV Ltd after their jump to a 14-year high on Wednesday, after billionaire Gautam Adani’s conglomerate moved to take a near 30% stake in the media group.

HSBC is also under the spotlight, after China’s Ping An Insurance Group said it supported calls to restructure the global banking giant. Ping An is HSBC largest shareholder with an 8.3% stake worth around $10.3 billion.

Key developments that should provide more direction to markets on Thursday:

Japan producer price inflation (July)

BOJ board member Nakamura speech, press conference

South Korea rate decision

(Reporting by Jamie McGeever in Orlando, Florida; Editing by Josie Kao)