Global rally shudders to halt

Dec 21 – Investors in Asia go into Thursday’s trading session on the defensive, after a late slide on Wall Street took the shine off figures that earlier showed global inflationary pressures cooling further.

The regional economic and policy highlights on Thursday are the Indonesian central bank’s latest policy decision, consumer price inflation and trade figures from Hong Kong, and producer price inflation data from South Korea.

A far steeper decline in UK inflation last month than anticipated hammered gilt yields on Wednesday and strengthened the growing view that major central banks have substantial room to cut interest rates next year.

With figures also showing a jump in US consumer confidence to a five-month high, the ‘Goldilocks’ and ‘soft landing’ juiced the global risk rally until the last hour of trading on Wall Street triggered a sharp reversal.

World stocks, which were up 10 days in a row and on course for their longest winning streak in nearly three years, slumped 0.7% and chalked up their biggest decline in two months. The three main US indexes, at or near record highs this week, also registered their biggest daily losses since October.

If that negativity spills over into Asia into Thursday, the long-standing underperformance of emerging market and Asian markets – and Chinese markets, in particular – is likely to continue.

The Shanghai blue chip CSI 300 index fell more than 1% on Wednesday. It is on course for a sixth straight weekly loss, which would be its worst weekly run in 12 years, and a record fifth consecutive monthly loss.

The big picture remains challenging – deflation is taking hold, the huge property sector is imploding and the growth outlook is questionable at best.

It’s a different story in Hong Kong, at least as far as inflation is concerned. Consumer price inflation has been rising lately, and reached a year-high of 2.7% in October while the month-on-month rate rose to a two-year high of 1.0%.

Economists in a Reuters poll expect figures on Thursday to show that annual inflation held steady at 2.7% in November.

Bank Indonesia, meanwhile, is expected to keep its benchmark seven-day reverse repo rate steady at 6.00% for a second month – inflation has been within its 2% to 4% target range for six months and the rupiah has gained nearly 2% since a surprise rate hike in October, easing pressure on imported prices.

Economists polled expect the first rate cut to be in the third quarter of 2024. But with inflation well-behaved, the rupiah ticking up, and the Fed forecast to start cutting US rates pretty soon, BI may move well before that.

Here are key developments that could provide more direction to markets on Thursday:

– Indonesia central bank policy decision

– Hong Kong consumer price inflation (November)

– South Korea producer price inflation (November)

(By Jamie McGeever; Editing by Josie Kao)