Thailand’s central bank is expected to keep its key policy rate unchanged at 2.25% and likely through 2024, signaling the end of a year-long tightening cycle. Despite a slight increase in inflation to 0.88% in August, it has remained below the central bank’s target range for four consecutive months. This suggests that the Bank of Thailand can halt its rate hikes. The Thai baht has weakened to its lowest level since November, down almost 4% this month. In contrast, the Japanese authorities have not intervened in the foreign exchange market to support the yen, which has reached an 11-month low against the dollar.
On Wall Street, high and rising U.S. bond yields led to a significant decline in global stocks and risk appetite. The three major U.S. equity indexes all lost more than 1% on Tuesday, with the Dow Jones Industrials experiencing its worst day since March. The S&P 500 and Nasdaq are on track for their largest monthly losses this year, at 5% and 7% respectively. This volatility on Wall Street is reflected in the VIX ‘fear index’, which has risen to 19.0, closer to long-term averages.
The rise in U.S. crude oil prices is also noteworthy, as it lifts the year-on-year price increase to almost 20%. This turnaround in oil prices explains the significant rise in longer-dated bond yields.
Looking ahead, the Bank of Thailand rate decision, Australian consumer price inflation data, and Chinese industrial profits will be key economic and policy events in the Asian markets. The volatility in the U.S. bond market is expected to impact Asian markets as well.
In conclusion, the Asian markets are likely to open lower on Wednesday due to the decline in global stocks and risk appetite caused by high U.S. bond yields. The Bank of Thailand is expected to keep its policy rate unchanged, signaling the end of its tightening cycle. The weakening Thai baht and the yen’s decline against the dollar are also significant factors to watch.
