BENGALURU: Equities in Asian emerging markets advanced on Friday, eyeing a positive end to an otherwise rough week as benign US jobless claims data calmed recession fears and nudged the markets to pare back their bets of aggressive rate cuts by the Fed.
Taiwan’s benchmark index surged more than 3% while shares in South Korea added 1.4%. MSCI’s gauge of Asian emerging market equities, in which the two East Asian countries hold roughly 40% weight, jumped 2%.
Currencies in the region also logged broad gains against the greenback: the Taiwanese dollar added 0.5% while South Korea’s won jumped 1%.
In Southeast Asia, Malaysia’s ringgit appreciated 0.3%, while the Philippine peso, Singapore dollar, and the Thai baht ticked higher.
MSCI’s index of emerging market currencies jumped 0.4% to its highest since early April.
Markets have endured a roller-coaster of a week, with Monday seeing a historical sell-off triggered by massive unwinding of the yen-funded carry trade as data indicated the US Federal Reserve might have to be more aggressive in easing policy at a time when the Bank of Japan (BOJ) looked poised for rate hikes.
Some relief came later in the week in the form of assurances from the BOJ that more tightening may not happen at a time of heavy turbulence, sending the yen sharply lower. Further aiding the sentiment was the US jobless claims data overnight on Thursday that eased concerns of an economic slowdown.
Odds of a half-point rate cut by the Fed in mid-September are down to 54% from 69% on Wednesday, according to CME’s FedWatch tool.
“The fact that many have reacted and seen the US weekly jobless claims report as a signal shows how open-minded many who had recently subscribed to the US recession trade are,” Chris Weston, head of research at Pepperstone, said.
Pointing to next week’s data including US inflation and retail sales, Weston said “good numbers here and we could be looking at a solid rally playing through the week in equity, and risky markets more broadly”.
Equities in Malaysia, Indonesia, and Thailand advanced between 0.5% and 1%, although were on track for weekly losses. In the Philippines, the benchmark jumped 1% on Friday and was just above water for the week ahead of the central bank meeting next week where analysts still expect a rate cut despite strong inflation.
“Keeping monetary policy tight amid softer growth and benign demand inflation may constrain growth more than necessary,” analysts at Standard Chartered wrote, maintaining their view of a quarter-point rate cut next week. In China, the yuan and the Shanghai Composite Index both ticked higher after data showed consumer prices rose at a slightly faster-than-expected pace last month, although the underlying consumption trend remained soft in the world’s second-largest economy.
