BENGALURU: Most Asian equities declined on Friday, while currencies held steady, as investors remained cautious ahead of the crucial U.S. jobs report later in the day that could impact the outlook for further rate cuts and the greenback.
MSCI’s gauge for emerging market stocks declined 0.3%, touching its lowest level since early September. The index has dropped more than 25% from its all-time high in 2021.
Stocks in Singapore fell 1.7%, down for a second day after touching a more than 17-year high on Wednesday. The benchmark was heading for their worst day since early August 2024.
The Philippine peso and the Malaysian ringgit edged 0.2% higher for the day. The peso retreated 0.7% for the week, on track for its worst week since early December.
The U.S. non-farm payrolls report is expected to show 160,000 jobs were added in December with unemployment holding at 4.2%. A much stronger increase in jobs would bolster the case for fewer rate cuts, in light of recent data pointing to a resilient economy.
The prospect of fewer rate cuts from the Fed and uncertainty regarding Trump’s proposed tariffs and immigration policies has led to a surge in global bond yields, supporting the dollar and keeping emerging market currencies under pressure this week.
“Asian markets have shown resilience due to attractive real rates, domestic support, and lack of fiscal concerns, however we remain cautious on EMFX in the medium-term given the potential impact of US policy on capital flows and the declining real yield cushion,” Citi analysts said in a note.
“We believe the USD rally and reduced EM carry make EMFX vulnerable in the near term.”
In Asia, the Bank of Korea (BoK) and Bank Indonesia (BI) will hold their respective monetary policy decisions next week.
Both central banks have already started their rate easing cycle, but analysts believe they will likely hold interest rates this time.
“Outsized FX moves in December will ultimately constrain the BoK from lowering its policy rate in January,” Barclays analysts said in a note.
The South Korean won, the worst performing currency among its peers in 2024, was also the most shorted among Asian currencies, according to a Reuters poll.
The South Korean won and stocks were largely unchanged. Equities in Indonesia climbed 0.6% while the rupiah edged 0.1% higher.
“While BI would likely prefer to resume its rate-cutting cycle, we believe pressures on the IDR (rupiah) override the central bank’s pro-growth instincts,” Barclays analysts said.
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