Bracing for higher US yields, dollar, inflation

Investors in Asia wake up on Thursday to a global market landscape redrawn by Donald Trump’s resounding US election victory that has propelled Wall Street to new highs and sparked a huge surge in the dollar and US bond yields.

Any appetite for ‘risk on’ trades in sympathy with the US equity rally will be largely offset, perhaps completely snuffed out, by tighter financial conditions from the rise in Treasury yields and the dollar.

Emerging market currencies fell across the board in Wednesday’s global session – Mexico’s peso slumped as much as 3% before recovering – and Asian exchange rates could come under heavy selling pressure on Thursday too.

Depending on the speed and extent of the selloff, some central banks may feel forced to intervene. The central banks of India and Indonesia, for example, have intervened in the FX market already this year to support their weak currencies.

At one point earlier on Wednesday the US dollar was up nearly 2% on an index basis, which would have been its biggest one-day rise since June 24, 2016 – the day after the Brexit referendum, which sank sterling.

The dollar gave back some gains and Treasuries clawed back some of their heavy losses late on Wednesday, as the huge spike in yields attracted strong demand at an auction of 30-year bonds.

Will investors in Asia on Thursday stick with the so-called ‘Trump trades’ – bets linked to higher federal spending, deficits and inflation, and greater deregulation – or will they exert restraint, and await more attractive levels to re-enter?

Among the biggest moves of Wednesday’s session was bitcoin’s rise of almost 10% to a record high of USD 75,459 as investors bet on the Trump administration implementing policies that will help cement cryptocurrencies’ place in the financial ecosystem.

As if the US election tumult wasn’t enough, the Federal Reserve announced its interest rate decision on Thursday after a two-day meeting. This could provide investors with the cover to reduce risk exposure and trade more defensively on Thursday.

Perhaps fittingly, the first full day of market trading in Asia following Trump’s victory sees the release of Chinese trade and foreign exchange reserves data.

China has been the main target of Trump’s fiery rhetoric about global trade and how the US has suffered from unfair practices practiced by Beijing. He has said imports from China will be subject to tariffs of 60%, perhaps even higher.

Official figures on Thursday are expected to show that export growth accelerated in October to an annual rate of 5.2%, boosted by steep discounts, while imports likely shrank 1.5%, according to a Reuters poll.

Thursday’s calendar also includes the latest Australian trade figures, GDP data from the Philippines, and second-quarter earnings from Japan’s Nissan.

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

– Further reaction to US presidential election

– China trade (October)

– Philippines GDP (Q3)

(Reporting by Jamie McGeever; Editing by Diane Craft)