Asian FX, stocks jolted as Fed rate bets rise after CPI shock

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Currencies and shares in Asia’s emerging

markets were battered on Wednesday as the dollar advanced in the

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wake of a hotter-than-expected U.S. inflation report, which

fueled market bets on more aggressive Federal Reserve rate

hikes.

Shares in Taipei fell as much as 2.5% in their

biggest single-day drop in more than two weeks, while equities

in Manila, Seoul, Singapore, and Shanghai

all fell more than 1%.

“A sharp repricing of rates expectations will lead to a

widening of yield differentials and that puts more pressure on

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AXJ FX,” said Christopher Wong, currency strategist at OCBC

Bank.

Overnight data showed the U.S. headline Consumer Price Index

rose 0.1% on a monthly basis compared to expectations for a 0.1%

decline. Core inflation, stripping out volatile food and energy

prices, doubled to 0.6%.

“Upside surprise in U.S. CPI (on several dimensions) dashed

inflated hopes that entrenching signs of peaking inflation

will allow the Fed to dial back on aggressive tightening,” said

Vishnu Varathan, head of economics and strategy at Mizuho Bank

in Singapore.

Money markets currently price in 37% odds for a full

percentage-point hike on Sept. 21, versus a 63% probability of

another 75 basis-point move.

“The resultant hawkish jolt to markets was brutal, with a

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blood bath in equities,” Varathan said.

Wall Street saw its steepest fall in two years, the

safe-haven dollar posted its biggest jump since early 2020, and

two-year Treasury yields, which rise with traders’

expectations of higher Fed fund rates, jumped to the highest

level in 15 years.

In Asia, the South Korean won declined 1.6% to

its lowest level since March 2009. Indonesia’s rupiah

weakened to a six-week low, while the Malaysian ringgit

slid 0.4% to its lowest since January 1998.

“The risk of tighter financial conditions and growth worries

further undermine trade-dependent and high-beta FX like the

Korean won, Taiwanese dollar and the Thai baht,” said OCBC

Bank’s Wong.

Persistent dollar strength has already burdened Asian

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currencies heavily this year, with the won, Philippine peso

and Taiwanese dollar all down more than 10%. The Chinese

yuan has also slumped, driven lower in part by the

country’s COVID-19 outbreaks.

“Given excessive moves in FX markets, I won’t rule out

central banks engaging in further jawboning,” Wong said.

South Korean and Japanese officials have threatened currency

market intervention, with a weak growth outlook adding to

downward pressure on the won and low rates weighing on the yen.

The Bank of Japan conducted a rate check in apparent

preparation for currency intervention, the Nikkei website

reported on Wednesday, citing unidentified sources.

The yen reversed losses to trade up nearly 0.6% on

Wednesday.

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HIGHLIGHTS

** BOJ checks FX rates in apparent preparation for currency

intervention -Nikkei

** Taiwanese stocks post biggest single-day loss since Aug

29

** Baring Private Equity raises $11.2 bln in one of Asia’s

largest buyout funds

** Thailand approves more energy support, wage hikes

Asia stock indexes and currencies at 0431 GMT

COUNTRY FX RIC FX FX YTD INDEX STOCK STOCKS

DAILY % S YTD %

% DAILY

%

Japan +0.24 -20.19 -2.45 -3.05

China +0.07 -8.75 -1.02 -11.24

India -0.50 -6.56 -0.74 3.35

Indonesia -0.44 -4.46 -0.72 10.40

Malaysia -0.40 -7.96 -0.83 -5.87

Philippines -0.11 -10.83 -1.38 -7.20

S.Korea -1.35 -14.62 -1.44 -18.92

Singapore +0.10 -4.00 -1.13 4.14

Taiwan -0.64 -10.93 -1.58 -19.54

Thailand -0.19 -8.96 -0.78 -0.57

(Reporting by Harish Sridharan in Bengaluru; Editing by Edmund

Klamann)