Selloff, what selloff? Markets back in their groove

March 7 – As you were.

Asian markets are set for a positive open on Thursday following a widespread ‘risk on’ move on Wednesday, while investors in the region await trade figures from China and Australia, and an interest rate decision from Malaysia.

Global stocks and risk assets on Wednesday shrugged off the previous day’s jitters and resumed their climb higher while US bond yields drifted lower, after Federal Reserve Chair Jerome Powell kept the door open to interest rate cuts later this year.

If Powell’s goal was to play a straight bat in his three hours of questioning from US House of Representative lawmakers on Wednesday and avoid any market ructions, he more than met it.

The MSCI Asia ex-Japan index had already risen 0.77% on Wednesday before Powell spoke, its biggest rise in two weeks. The dollar slide, lower bond yields and rise on Wall Street after his testimony should give regional sentiment a further boost on Thursday.

The main economic indicator in Asia on Thursday is Chinese trade. Beijing this week said it is aiming for GDP growth this year of around 5% again, but many analysts are skeptical – the performance of imports and exports in recent months suggests trade will not be a major driver.

Export growth likely slowed in the January-February period, suggesting manufacturers are still struggling for overseas buyers and in need of further policy support at home.

Data for the January-February period is expected to show exports grew 1.9% year-on-year in US dollar terms compared with 2.3% growth in December, according to a Reuters poll, while import growth accelerated to 1.5% from 0.2%.

Several Asian countries publish their latest foreign exchange reserves holdings on Thursday. At the last count, the six jurisdictions – China, Japan, Hong Kong, Malaysia, Indonesia and Singapore – held a combined USD 5.55 trillion, nearly half of the global total.

China and Japan are the world’s largest holders with USD 3.22 trillion and USD 1.29 trillion, respectively. Changes in FX reserve holdings are very small, but China’s numbers in particular are always closely watched.

Malaysia’s central bank, meanwhile, announces its latest interest rate decision. Bank Negara Malaysia (BNM) is expected to leave its overnight policy rate (OPR) unchanged at 3.00% and hold it there until at least 2026 as inflation was expected to pick up, a Reuters poll found.

Although inflation eased to 1.5% in January, having peaked at 4.7% in August 2022, economists expect price pressures to rise in the second half of this year, suggesting a rate cut from the central bank was unlikely anytime soon.

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

– China trade (February)

– China, Japan FX reserves (February)

– Malaysia interest rate decision

(By Jamie McGeever)