Asian markets fall on hawkish Fed; Thai baht weakens 1pc

• Thailand raises Covid-19 alert level

• Most Asian currencies weaken except Japan’s yen

• Indonesia 10-yr bond yields at near four-week low

BENGALURU: The Thai baht weakened 1% on Thursday as rising Omicron cases threatened the tourism-reliant country’s economic recovery and growth outlook, and other Asian markets witnessed a broad sell-off as well on an increasingly hawkish U.S. Federal Reserve.

Emerging currencies weakened across the board, with the Thai baht marking its worst session since last March after the country’s COVID-19 alert level was raised on surging cases, driven by the Omicron variant.

The baht, the worst performing currency in the region last year, had appreciated nearly 1% in its previous five sessions. However, with surging new cases, the tourism-dependent nation faces fresh restrictions, further clouding its growth outlook.

Elsewhere, the Indonesian rupiah lost as much as 0.4% to hit its lowest in a month, while the Philippine peso, the South Korean won, and the Malaysian ringgit each depreciated about 0.4%.

Regional equities also broadly fell, with India’s Nifty 50 being the top loser, shedding 1.5% as an alarming spike in daily COVID-19 cases - a jump of 57% in the past 24 hours - raised fears of fresh restrictions and impact on the economic recovery.

An uptick in Omicron cases is clouding the outlook for Southeast Asian countries, with Singapore expecting the new coronavirus variant to cause a bigger wave of infections than the Delta variant.

Shares in the Philippines, Malaysia, Indonesia and South Korea also declined more than 1% each.

According to minutes from the Fed’s December meeting, officials said a “very tight” job market and unabated inflation would require the central bank to raise interest rates earlier than expected and start reducing its overall asset holdings.

That pushed the U.S. Treasury yields higher along the curve, with the benchmark 10-year yield rising to 1.7330%, its highest level since last April, while the dollar edged higher to 96.254.

“A risk-based examination of the 2022 outlook for EM Asia must inexorably be shaped by hard-to-predict interactions between pandemic, price, policy and geo-political risks,” analysts at Mizuho Bank said in a note.

“As such, EM Asia’s recovery may lag and remain uneven; as China neither provides emphatic tailwind nor erases downside risks.”

Back in Southeast Asia, Indonesia’s high-yielding 10-year bonds benefited from strong inflows after having underperformed in 2021, according to analysts.

The yield was last at 6.329%, recovering from its five-week low of 6.307% hit in the previous session.

Barclays analysts expect Indonesian bonds to “offer some upside in the near term, especially after cheapening and underperforming” in 2021, with the 10-year yields likely to stabilise between 6.25% and 6.50% in the first quarter.

But they added that foreign purchases of Indonesian bonds should slow as the US Fed tightens monetary policy.