Introduction to Asian Markets
Asian stocks experienced a decline on Friday due to stronger-than-expected US producer price data, which reduced the likelihood of a significant Federal Reserve interest rate cut next month. This resulted in the dollar strengthening and regional currencies facing pressure.
Impact on Regional Currencies and Stocks
Equities in Malaysia fell by 0.3%, despite logging their second consecutive weekly gain. Singapore stocks suffered a more substantial decline of over 1%. The MSCI gauge of Asian emerging market equities also dropped by 0.3%. Alan Richardson, senior portfolio manager at Samsung Asset Management, expressed doubts about the sustainability of recent advances in Asean markets, citing the lack of translation of lower inflation and interest rates into an improving growth outlook.
US Producer Prices and Their Effects
US producer prices rose more than expected in July, dampening hopes for a substantial Fed rate cut in September. This development countered the positive impact of mild consumer inflation data earlier in the week, which had boosted expectations for policy easing next month and lifted risk assets. The dollar index retained its gains from the previous session, keeping Asian currencies under pressure. The Philippine peso slipped by 0.1%, and Taiwan’s dollar dipped by 0.3% to its lowest level since late May.
Currency and Market Outlook
Poon Panichpibool, markets strategist at Krung Thai Bank, suggested that while EM Asian currencies might face pressure in the near term, they are likely to regain strength going forward, particularly in the fourth quarter of 2025 and the first quarter of 2026. This anticipated rebound is tied to potential dollar weakness after the Fed’s policy path becomes clearer. Thailand’s central bank cut interest rates by 25 basis points, its fourth reduction in 10 months, but stocks fell by 0.8% on Friday, while the baht remained flat.
Country-Specific Developments
In Indonesia, the rupiah lost 0.3%, but equities reached a record high for a second consecutive session. This boost was driven by hopes of US rate cuts this year and greater clarity over regional tariffs. Mohit Mirpuri, equity fund manager at SGMC Capital, highlighted the next two weeks as pivotal for Indonesia, with the Bank Indonesia policy meeting on August 20 and the likelihood of passive inflows due to some Indonesian firms being added to the MSCI emerging markets index. Mirpuri emphasized focusing on positioning ahead of these events rather than daily market fluctuations.
Conclusion
In conclusion, the Asian markets experienced a setback due to the stronger-than-expected US producer price data, which impacted the prospects for a significant interest rate cut by the Federal Reserve. The strengthening of the dollar and the pressure on regional currencies added to the decline in stocks across several Asian countries. However, market analysts suggest that while near-term challenges exist, there are indications of potential rebound and growth in the fourth quarter of 2025 and beyond, driven by anticipated dollar weakness and positive developments in regional economies.
