The rout in Japanese stocks triggered by US recession fears and the unwinding of the yen carry trade ripped through global markets overnight, although there are signs of it easing up this morning. The RBA is expected to hold rates later today.
In our bonus deep dive interview, we speak to ANZ’s Head of FX Research Mahjabeen Zaman after a day of turmoil in Asian markets to find out what on earth’s going on. Long story short: it’s mostly about an unwinding yen carry trade.
5 things to know:
Global markets continued their rout overnight, although there are signs the turmoil is slowing: the S&P 500 was down 2.5% at 4am Sydney/Melbourne time after opening the day down 4.2%. The Nikkei fell 13.5% yesterday. ANZ Economist Bansi Madhavani says markets fear the US Fed will cut faster due to worrying recession signs, while the Bank of Japan hikes rates.
Bansi says markets have increased pricing of Fed rate cuts this year, intimating expectations for at least one 50 basis point cut. There were even reports yesterday of traders expecting an emergency rate cut by the Fed. Markets are currently pricing about 115-120 basis points worth of cuts this year.
The Reserve Bank of Australia has to make a rate decision today amid all of that. The RBA is expected to hold its cash rate at 4.35%. ANZ Senior Economist Catherine Birch thinks the board might still discuss whether it’s appropriate to hike rates, before settling on no move, particularly as most other central banks start to ease.
The RBA is set to produce an updated set of forecasts at this meeting, which Catherine says could include a few changes from May.
Rate cuts are on the horizon this year in Indonesia, after Q2 annual GDP growth eased to 5.05% from 5.11% in Q1. ANZ Economist Krystal Tan says final domestic demand is now running lower than its pre-pandemic level.
Cheers
Bernard
PS: Catch you tomorrow with reaction to the RBA’s rate decision and the latest drama on global markets.
