Asian markets face hurdles before potentially significant day on Wednesday with U.S. inflation and Federal Reserve’s policy decision. Thailand’s central bank sets interest rates amidst deteriorating investor confidence, while China releases latest inflation figures. Global market sentiment appears bullish, with Wall Street experiencing a surge in Apple shares and new highs for S&P 500 and Nasdaq. However, risk appetite in Asia is more uncertain due to concerns about China’s outlook.
Is Beijing succeeding in its battle against deflation? The performance of domestic asset markets suggests that investors are not yet convinced. Bond yields are at historically low levels, stocks hit a six-week low on Monday, and the yuan has weakened to its lowest level against the dollar since November.
Economists predict that annual consumer inflation in May will only increase slightly to 0.4% from 0.3%, while the month-on-month rate is expected to decline to zero from 0.1%. This does not indicate a rapidly re-inflating economy, but it would be the first time in a year with four consecutive positive readings.
On the other hand, annual factory gate inflation is expected to remain significantly negative at -1.5%. Producer prices have been falling on a year-on-year basis every month since October 2022.
Meanwhile, the Bank of Thailand is anticipated to maintain its key interest rate at 2.50% for the fourth consecutive meeting on Wednesday. It is not expected to cut rates until the final quarter of the year.
The Bank of Thailand (BoT) announced its decision later than previously anticipated. Despite inflation remaining well below the central bank’s upper limit of 3% for over a year, the Thai baht has depreciated by approximately 6% this year.
The BoT’s decision comes after the country’s benchmark stock index fell by as much as 1.5%, reaching its lowest level since November 2020. The index has underperformed the MSCI Asia ex-Japan index, which has increased by 5.5% this year.
Political uncertainty in Thailand, exacerbated by three court cases, including one involving the prime minister, has prompted investors to withdraw from the country’s stock market. This has further impacted Southeast Asia’s second-largest economy.
In other parts of Asia, investors will closely monitor South Korea’s unemployment numbers, India’s industrial production figures, and Japan’s latest wholesale inflation data on Wednesday.
Japan’s annual wholesale inflation is expected to more than double in May to 2.0%, marking the highest level since September.
Indonesia’s rupiah, which reached its lowest point in four years on Tuesday, is another Asian currency worth monitoring.