Five pressure points to watch in Asian markets after Fed's 75 bps hike

Asia traders are waking up to a relief rally across the Pacific after Federal Reserve Chair Jerome Powell promised the biggest rate hike since 1994 won’t be the rule.
 

But nerves are frayed after this month’s market volatility and his warning that growth will slow and unemployment climb could still result in new bouts of risk asset selling.

Here are five key pressure points to watch in Asian markets on Thursday:

Yen Bears
 

The yen, pushed to a 24-year low against the dollar as it’s caught between a hawkish Fed and dovish Bank of Japan, will be in the cross-hairs of macro traders once more. It strengthened in the aftermath of the Fed meeting as Treasury yields slumped, and was at 134.17 per dollar at 7:41 a.m. in Tokyo Thursday. 

But Friday’s BOJ decision could result in fresh volatility as bets mount on tweaks to Japan’s increasingly isolated super-easy monetary policy.

 

Tech Troubles

Asia’s technology stocks have had a bad year as investors re-assess valuations, but the Fed’s less hawkish stance may provide some respite as dip-buyers come in at cheaper valuations. Shares of China’s internet giants have been particularly volatile and sensitive to risk sentiment. The country’s Covid lockdowns and regulatory pressures have compounded investor concerns about earnings.

 

JGBs Pressured 

Speculators pushed Japan’s bond futures to the brink of a trading halt Wednesday, as the Bank of Japan struggles to convince markets its pledge to cap yields at 0.25% is sustainable as the Fed aggressively hikes. Ten-year contracts slumped by the most since 2013, with the selloff persisting even after the BOJ ramped up its bond buying program. 

The fall in Treasury yields may provide some relief but the futures have come under increasing focus as hedge funds bet on an abrupt shift in policy.

 

EM Selloff

Stocks in emerging Asian markets could catch a tailwind after the dollar fell overnight and Chinese shares bucked the recent rout. Tech-heavy Taiwan, South Korea and India could see some investors return after foreign funds sold more than $70 billion net of shares this year, according to data compiled by Bloomberg.

 

Indonesian Bonds
 

Some investors will also eye Indonesian bonds, which are among the riskiest in Asia and the most sensitive to swings in US interest-rates. The country’s five-year bond yields have risen by more than 30 basis points this week as the market braced for the double whammy of a Fed hike and the likelihood of Bank Indonesia following suit next week. Indonesian bonds are among the worst performers in Asia with a 2.1% fall on aggregate so far this month.