BENGALURU (June 15): A preliminary US-Iran peace agreement fuelled a rally in emerging Asian equities and currencies on Monday, with Jakarta and Seoul stocks jumping more than 5%, as lower oil prices raised hopes of softer inflation and lower borrowing costs.
A tentative deal between the US and Iran drove oil prices to their lowest level since March, easing pressure on battered assets in oil-dependent emerging economies.
It also bolstered expectations that softer energy prices could ease inflation globally and reduce pressure on central banks to raise or keep interest rates elevated.
“It’s positive for risk assets, positive for risky currencies, negative for the US dollar,” said Imre Speizer, a market strategist at Westpac.
Equities rallied across the region. The MSCI’s gauge of emerging-market Asian shares jumped 3.2% to its highest level in more than a week, led by an over 5% surge in South Korean stocks and a near 3% gain in Taiwan’s benchmark index.
Stocks in Jakarta advanced about 5%, extending gains to about 17% rise over five sessions since Bank Indonesia’s off-cycle rate hike last Tuesday.
Major lenders Bank Central Asia, Bank Mandiri, and Bank Rakyat Indonesia rose between 4.2% and 7.6%.
Stocks in the Philippines jumped by more than 6% to their highest since early March, while those in Singapore and Malaysia added 0.5% and 1% respectively.
Currencies also strengthened against a weak dollar: The Indonesian rupiah rose more than 1% to 17,670 per dollar, the highest since May 22, while the won touched 1,503.9 before trading around 1,512 by afternoon.
The US-Iran deal could give central banks some breathing room this week, reducing the urgency to tighten policy in response to energy-driven inflation risks.
Market participants are split on monetary policy decisions in Indonesia and the Philippines this week, while a majority expect Taiwan’s central bank to keep policy rates unchanged.
“While inflation pressures would likely abate as global crude oil prices decline and supply constraints related to the Strait of Hormuz ease, so would the negative growth risks,” Barclays economists led by Brian Tan said in a note.
“To be sure, this could encourage central bankers to hold off on near-term moves and seek for more time to assess how the economic situation evolves before tightening monetary policy.”
Nevertheless, analysts flagged concerns about the lingering inflationary impact of the war in the months ahead, and whether the recent rebound in Asian currencies can be sustained.
“Inflation will continue to be fairly moderate because of these few months of price pressures…overall, it is still too premature to expect that Asian central banks have room to ease,” said Jeff Ng, the head of Asia macro strategy at SMBC.
Investors are also focused on the US Federal Reserve’s June 16-17 policy meeting, the first to be led by newly appointed chair Kevin Warsh.
- The yield on Indonesia’s 10-year bonds was at 6.997%
- Group of Seven leaders will meet in France after the US and Iran declared an agreement to end the war
- Taiwan is likely to hold rates steady but inflation is a concern ahead, a poll showed.
- The yield on 30-year Japanese government bonds fell 4.5 basis points to 3.750%
