SPX3,585.62-54.85 -1.51%
DIA287.30-4.91 -1.68%
IXIC10,575.62-161.89 -1.51%

EMERGING MARKETS-Asian FX, stocks jolted as Fed rate bets rise after CPI shock

EMERGING MARKETS-Asian FX, stocks jolted as Fed rate bets rise after CPI shock

Reuters · 09/14/2022 01:23
EMERGING MARKETS-Asian FX, stocks jolted as Fed rate bets rise after CPI shock

All major benchmark share markets in EM Asia fall

Malaysia's ringgit slides to lowest since Jan 1998

S.Korean won hits lowest level since March 2009

By Harish Sridharan

- Currencies and shares in Asia's emerging markets were battered on Wednesday as the dollar advanced in the wake of a hotter-than-expected U.S. inflation report, which fuelled market bets on more aggressive Federal Reserve rate hikes.

Shares in Taipei .TWII fell as much as 2.5% in their biggest single-day drop in more than two weeks, while equities in Manila .PSI, Seoul .KS11, Singapore .STI, and Shanghai .SSEC all fell more than 1%.

"A sharp repricing of rates expectations will lead to a widening of yield differentials and that puts more pressure on AXJ FX," said Christopher Wong, currency strategist at OCBC Bank.

Overnight data showed the U.S. headline Consumer Price Index rose 0.1% on a monthly basis compared to expectations for a 0.1% decline. Core inflation, stripping out volatile food and energy prices, doubled to 0.6%.

"Upside surprise in U.S. CPI (on several dimensions) dashed inflated hopes that entrenching signs of peaking inflation will allow the Fed to dial back on aggressive tightening," said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.

Money markets currently price in 37% odds for a full percentage-point hike on Sept. 21, versus a 63% probability of another 75 basis-point move.

"The resultant hawkish jolt to markets was brutal, with a blood bath in equities," Varathan said.

Wall Street saw its steepest fall in two years, the safe-haven dollar posted its biggest jump since early 2020, and two-year Treasury yields US2YT=RR, which rise with traders' expectations of higher Fed fund rates, jumped to the highest level in 15 years. MKTS/GLOB

In Asia, the South Korean won KRW=KFTC declined 1.6% to its lowest level since March 2009. Indonesia's rupiah IDR= weakened to a six-week low, while the Malaysian ringgit MYR= slid 0.4% to its lowest since January 1998.

"The risk of tighter financial conditions and growth worries further undermine trade-dependent and high-beta FX like the Korean won, Taiwanese dollar and the Thai baht," said OCBC Bank's Wong.

Persistent dollar strength has already burdened Asian currencies heavily this year, with the won, Philippine peso PHP= and Taiwanese dollar all down more than 10%. The Chinese yuan CNY=CFXS has also slumped, driven lower in part by the country's COVID-19 outbreaks.

"Given excessive moves in FX markets, I won't rule out central banks engaging in further jawboning," Wong said.

South Korean and Japanese officials have threatened currency market intervention, with a weak growth outlook adding to downward pressure on the won and low rates weighing on the yen.

The Bank of Japan conducted a rate check in apparent preparation for currency intervention, the Nikkei website reported on Wednesday, citing unidentified sources.

The yen reversed losses to trade up 0.6% on Wednesday.


HIGHLIGHTS


** BOJ checks FX rates in apparent preparation for currency intervention -Nikkei

** Taiwanese stocks post biggest single-day loss since Aug 29

** Baring Private Equity raises $11.2 bln in one of Asia's largest buyout funds

** Thailand approves more energy support, wage hikes


Asia stock indexes and currencies at 0431 GMT

COUNTRY

FX RIC

FX DAILY %

FX YTD %

INDEX

STOCKS DAILY %

STOCKS YTD %

Japan

JPY=

+0.24

-20.19

.N225

-2.45

-3.05

China

CNY=CFXS

+0.07

-8.75

.SSEC

-1.02

-11.24

India

INR=IN

-0.50

-6.56

.NSEI

-0.74

3.35

Indonesia

IDR=

-0.44

-4.46

.JKSE

-0.72

10.40

Malaysia

MYR=

-0.40

-7.96

.KLSE

-0.83

-5.87

Philippines

PHP=

-0.11

-10.83

.PSI

-1.38

-7.20

S.Korea

KRW=KFTC

-1.35

-14.62

.KS11

-1.44

-18.92

Singapore

SGD=

+0.10

-4.00

.STI

-1.13

4.14

Taiwan

TWD=TP

-0.64

-10.93

.TWII

-1.58

-19.54

Thailand

THB=TH

-0.19

-8.96

.SETI

-0.78

-0.57



(Reporting by Harish Sridharan in Bengaluru; Editing by Edmund Klamann)

((Harish.Sridharan@thomsonreuters.com; Twitter: https://twitter.com/damnit_saladin;))