Tuesday, July 5

Asian stocks upbeat but investors cautious of looming rate hikes


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Asian stocks rose on Wednesday, tracking

a rally on the Wall Street, but gains were capped by investors’

fears that aggressive central bank rate hikes could lead to

stagflation.

Equities in Taiwan led gains among Asian markets to

advance 1%, followed by a 0.5% rise in Thailand stocks.

Malaysia’s also traded 0.2% higher.

Thailand’s central bank will meet later in the day and

analysts largely expect it will hold the 1-day repo rate at

0.50% to support economic recovery.

Thailand’s May headline inflation hit its highest level in

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nearly 14 years and prices are expected to continue rising,

eclipsing the central bank’s 1%-3% target

While the Bank of Thailand (BOT) will be hard pressed to

ignore this reading, it may still look to fiscal policy efforts

to rein in inflation, as it faces considerable pressure to

foster a full economic recovery.

Currencies in the region were largely subdued, following a

dip in the US dollar after Target Corp warned about excess

inventory and said it would cut prices, offering some relief to

those who think inflation may be peaking.

Both the rupiah and the baht fell 0.2% each,

and the Philippine peso eased 0.1%. The Malaysian ringgit

and Indian rupee bucked the trend.

“The market is still digesting that the US Federal Reserve

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is sticking to its aggressive path in a bid to tame inflation.

The US economy has not slowed down enough for inflation to be

under control yet,” said Moh Siong Sim, FX Strategist at Bank of

Singapore.

India’s central bank, the Reserve Bank of India (RBI),

raised the key repo rate by 50 basis points (bps), the second

hike in as many months, to combat galloping inflation, adding

that the faster pace of monetary policy normalization in

advanced economies has amplified volatility in financial

markets.

Wednesday’s increase follows a 40-bps rise in early May at

an unscheduled meeting that kicked off the central bank’s

tightening cycle, which economists expect to be relatively

short.

Mounting supply constraints and prospects of demand growth

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from China pushed oil prices further higher, thereby weighing on

the regional currencies.

Meanwhile, the World Bank slashed its global growth forecast

by nearly a third to 2.9% for 2022, warning that Russia’s

invasion of Ukraine has compounded the damage from the COVID-19

pandemic, and many countries now faced recession.

HIGHLIGHTS:

** South Korea’s economy grew by a seasonally adjusted 0.6%

in the first quarter from three months earlier, slightly lower

than 0.7% growth estimated earlier

** Indonesia to cut maximum palm oil export tax and levy to

a combined $488/T -trade minister

** Indonesian 10-year benchmark yields rise to 7.075%

Asia stock indexes and currencies

at 0421 GMT

COUNTRY FX RIC FX FX INDE STOCKS STOCKS

DAILY % YTD % X DAILY YTD %

%

Japan -0.40 -13.5 <.n2>

China EC>

India +0.04 -4.31 <.ns ei>

Indonesi -0.15 -1.55 <.jk a se>

Malaysia +0.06 -5.17 <.kl se>

Philippi -0.11 -3.59 <.ps nes i>

S.Korea 11>

Singapore -0.04 -1.84 <.st e i>

Taiwan -0.00 -6.18 <.tw ii>

Thailand -0.23 -3.22 <.se ti>

(Reporting by Tejaswi Marthi in Bengaluru; Editing by Kim

Coghill)

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