Two rate calls as markets firm By Reuters

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Interest rate decisions in Thailand and Indonesia top the Asian calendar on Wednesday as investors put on hold the recent rally in many markets and look to a keynote speech by US Fed chief Jerome Powell later in the week.

The global equity market picture going into Wednesday looks to be one of consolidation as US Treasury yields retreat again and the dollar hits new lows for the year.

Fed Governor Michelle Bowman, one of the staunchest US rate-setters, reiterated on Tuesday that she sees rising risks to inflation and is cautious about cutting rates. But traders are increasingly confident that the easing cycle will begin next month, and are putting a 30 percent chance that the Fed will kick it off with a half-percentage-point cut.

The two-year Treasury yield is back below 4.00% and is down 3% this month. That’s supporting Asian and emerging markets – MSCI’s emerging market currency index hit a new high on Tuesday.

Taking advantage of the dollar’s weakness, it posted its biggest one-day gain this year at the central bank’s daily fix on Tuesday. In the spot market, the yuan recorded its strongest close since January 2.

Wednesday’s Asian calendar also includes figures on Japanese trade and South Korean producer price inflation, but the focus will be on Bangkok and Jakarta.

The Bank of Thailand will keep its overnight repo rate unchanged at 2.50 percent until the first quarter of next year, according to a Reuters poll, as policymakers balance growth, inflation and continued political instability.

Rate traders are more dovish, however, attaching a roughly 80% chance of a quarter-point cut in December. Inflation is below target and the government has repeatedly called for interest rate cuts, but central bank governor Sethaput Suthiwartnarueput has resisted so far.

Figures on Tuesday showed the Thai economy expanded in the second quarter faster than economists had expected, with annual growth coming in at 2.3 percent versus estimates of 2.1 percent. Growth in the first quarter was also revised down.

Meanwhile, Bank Indonesia is also expected to keep the benchmark seven-day repo rate at 6.25 percent, then cut borrowing costs in the fourth quarter after the start of the Fed’s easing cycle, according to a Reuters poll .

Annual inflation is barely 2.00%, the lowest in two-and-a-half years, but policymakers are wary that easing policy too soon could hit the rupee hard.

Asian currencies have generally been weaker against the dollar this year, but have recouped most of those losses in recent weeks. The Thai Baht is even rising slightly so far.

Here are the key developments that could provide more direction for Asian markets on Wednesday:

– Thailand’s interest rate decision

– Interest rate decision in Indonesia

– trade with Japan (July)