BENGALURU: Asian currencies and stocks climbed on Monday in holiday-thinned trading, with investors focussing on this week’s Federal Reserve policy meeting where it is almost certain the central bank will cut its key interest rate, the only question being by how much.
The broad MSCI emerging markets currency index edged 0.2% higher, while the MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4%. Markets in China, Japan, Indonesia, Malaysia and South Korea were closed for a holiday.
The Thai baht appreciated 0.2% against the greenback, while local stocks added 0.6%.
A senior finance ministry official said on Friday that the economy was expected to grow 3% this year, higher than the previous forecast of 2.7%, supported by the government’s digital wallet stimulus programme, new fiscal-year budget spending and an expanded government equity fund.
The Fed’s two-day monetary policy meeting beginning on Tuesday will take centre stage for the week. Expectations are for the central bank to kick-start an easing cycle, providing room for regional central banks to consider cutting rates.
Markets are pricing in a 61% chance of a 50 basis-point (bp) cut, with a 39% probability of a 25 bp reduction, CME FedWatch tool showed at 0640 GMT.
“A 25 bp cut will be less than what the market is anticipating, so it is likely to be moderately negative for risk sentiment in the immediate term,” said Alvin Tan, head of FX Strategy at RBC Capital Markets.
Meanwhile, Indonesia’s central bank is expected to keep interest rates unchanged on Wednesday to support the rupiah but is expected to cut next quarter, according to a Reuters Poll.
Market participants will also scrutinise inflation data from Japan and Hong Kong, as well as monetary policy decisions from Taiwan and the Bank of Japan later in the week.
The Philippine peso gained 0.3%, while stocks in Manila jumped 0.9%. Both the Taiwan dollar and Taipei stocks gained 0.4%.
Separately, data on Saturday showed that China’s industrial output growth slowed to a five-month low in August, while retail sales and new home prices weakened further, bolstering the case for aggressive stimulus to shore up the economy.
Faltering Chinese economic data has raised concerns on whether the country will be able to achieve the government’s official growth target of around 5%.
Goldman Sachs and Citigroup lowered their projections for China’s economic growth in 2024 to 4.7%.
“The demand side is getting more concerning – if trade momentum peaks, domestic demand weakness would increasingly feed into the supply side and erode production strength,” Citi said in a note.
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