Jittery Markets Split on 50 Bps Cut from Fed, According to Reuters

By Jamie McGeever

Investors in Asia are preparing for a significant influx of key economic data releases on Thursday while they process the market turbulence from earlier this week, fueled by concerns that the anticipated “soft landing” for the U.S. economy may lead to something more troubling.

On Wednesday, the Nasdaq and global stocks continued to decline, and equity volatility increased again, though at a smaller pace. This may provide some optimism for those hoping for a Thursday rebound in Asian markets following their downturn the previous day.

However, expectations may be more hopeful than realistic as sentiment shifts toward a bearish outlook.

Recent data indicated a sharp decline in U.S. job openings, reaching a 3-1/2-year low in July, marking another sign of a cooling labor market. This has prompted investors to sell stocks, invest in bonds, and prepare for more substantial interest rate cuts.

U.S. rate futures are now suggesting approximately a 50% chance that the Federal Reserve will implement a 50 basis point rate cut later this month, with expectations of a total easing of 225 basis points by the end of the following year. Such a level of policy easing is historically associated with recession.

For Asian and emerging markets, decreasing U.S. yields and a weaker dollar are usually positive indicators, but not when they signify a potential economic downturn.

Evidence of economic slowdowns is becoming more pronounced. The two-year U.S. Treasury yield recently plummeted to its lowest point since May of the previous year, while yields in both the U.S. and China are nearing record lows.

Thursday promises to be pivotal for Asian markets, with Thailand, Taiwan, and the Philippines set to release inflation figures for August. Additionally, Malaysia’s central bank will announce its interest rate decision, and South Korea will revise its second-quarter GDP data.

Malaysia’s central bank is anticipated to maintain its key policy rate at 3.0%, likely holding steady through 2026. The Malaysian ringgit has distinguished itself as the strongest-performing Asian currency this year, helping manage inflation. With growing global volatility and the Fed’s expected rate cuts, the ringgit may retain its strength for an extended period.

Another strong currency in the region is Japan’s yen, which is gaining traction as yen-funded carry trades are unwound, serving its traditional role as a haven for investors during turbulent times. The yen appreciated by roughly 1% against the dollar for a second consecutive day on Wednesday, potentially positioning itself for a new, stronger trading range.

In the Philippines, annual consumer price index (CPI) inflation is projected to moderate to 3.6% from 4.4%, while in Thailand, it is expected to drop to 0.4% from 0.83%. Taiwan’s CPI is also predicted to decrease to 2.27% from 2.52%. This widespread disinflation trend will be closely monitored.

Key developments on Thursday that could influence Asian markets include:

– Inflation data for the Philippines, Thailand, and Taiwan (August)
– Malaysia’s central bank interest rate decision
– Revised GDP figures for South Korea (Q2)