By Jamie McGeever
A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
Interest rate decisions and policy guidance from South Korea and Indonesia take center stage in Asia on Thursday, as investors also navigate the strong cross currents from global equity and bond markets the day before.
World stocks and Wall Street jumped on Wednesday, lifted by optimism over Nvidia's earnings, and bond yields tumbled after dismal purchasing managers index reports from Europe cast doubt over central banks' willingness to raise rates any further.
The tech-led rally on Wall Street delivered the Nasdaq's best day in a month, and the Nvidia mania appears to have been well-founded.
The artificial intelligence chip making giant after the bell reported strong second quarter revenue and said it expects third-quarter revenue of about $16 billion, smashing analysts' expectations of $12.6 billion.
Asian stocks also enjoyed the Nvidia ride on Wednesday and are now up two days in a row for the first time this month. But no thanks to China - the blue chip Shanghai CSI 300 index tanked again as foreign investor selling extended to a 13th straight session, bringing total outflows to more than $10 billion.
The MSCI Asia ex-Japan index is down 8% so far in August and on track for its biggest monthly loss since January 2016, when Chinese markets were in turmoil and the central bank was running down FX reserves to counter capital flight and support the yuan.
Investors may go into Thursday in a 'bad news is good news' frame of mind, risk appetite strengthened by the sharp decline in bond yields after PMIs showed that service and manufacturing sector activity in Europe is shrinking rapidly.
Good news that market-based borrowing costs are falling and that the Bank of England and European Central Bank may raise rates far less than expected - if at all - but bad news that growth appears to be crumbling.
On the Asian policy front, the Bank of Korea is expected to leave its key policy rate unchanged at 3.50% for a fifth consecutive meeting on Thursday and hold it steady for the rest of this year.
With inflation down to 2.3%, the lowest in over two years and close to the BOK's 2.0% target, markets are betting that the tightening cycle is over.
Bank Indonesia is also expected to keep its key interest rate steady, at 5.75% for the seventh consecutive meeting and for the rest of the year too.
With Indonesia's inflation last at a 16-month low of 3.08%, well within the 2% to 4% target range, the central bank's focus is now on keeping the currency stable. The rupiah is currently hovering around last week's five-month low of 15,359 per dollar.
Here are key developments that could provide more direction to markets on Thursday:
- South Korea interest rate decision
- Indonesia interest rate decision
- South Korea producer price inflation (July)
(By Jamie McGeever; Editing by Josie Kao)
