Asian Stocks To Be Sold On CPI, Traders Wary Of Yen Intervention

(Bloomberg) -- Asian stocks are likely to be under pressure after Wednesday’s faster-than-expected US inflation data, while currency traders will be on watch for possible yen intervention, according to analysts and strategists

Investors should take profit on short-yen bets given the intervention risk even if it may not be imminent, while Japan’s Ministry of Finance may come up with “strong words” to support the currency, they said. 

Here’s what analysts and strategists had to say: 

Shoki Omori, chief desk strategist at Mizuho Securities Co. in Tokyo:

Investors who have been betting on higher short-term Japanese swap rates and dollar-yen “could start taking profit given the risk of intervention,” he said. “If the Ministry of Finance does not move, the Bank of Japan will be the next target for speculators.”

Kristina Clifton, a senior currency strategist at Commonwealth Bank of Australia in Sydney:

“We expect strong words from Japan’s Ministry of Finance today about the weak yen. There is also a good chance that they back that up with direct intervention by buying yen.” 

Hebe Chen, an analyst at IG Markets:

“It’s not a complete shock, but rather a deepened frustration, as the narrative of ‘higher for longer’ has confirmed its return at the most undesirable timing. The Asian market, with no exception, is also set to head into this repricing cycle that will not only weigh heavily on Asian currencies but also challenge the optimism prevailing so far this year.”

Takashi Ito, senior strategist at Nomura Securities:

“After data like this, all the liquid stock markets in the world tend to move in sync, and in that kind of situation, high-beta shares and US-exposed names are likely to be affected the most. In Japan, chip-related stocks, info-comms, insurers and miscellaneous financials are likely to fall the most.”

Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney:

There is “weakness across Asia as market adjusts short-term rate expectations. Added geopolitical risk with Iran and a weak bond auction is not conducive to adding risk today.” 

Moh Siong Sim, a strategist at Bank of Singapore:

“Asian currencies are likely to remain on the back foot, watching and waiting for whether the USD/CNY fixing will move past 7.10 and whether Japan will intervene now that USD/JPY has broken above 152.”

“The Indian rupee is likely to remain resilient than most in a stronger US dollar environment. Korean won, Taiwan dollar, Thai baht and Malaysian ringgit will be sensitive to the USD/CNY fixings.” 

Mark Reade, head of credit strategy at Mizuho Securities Asia:

“We remain concerned that sticky inflation and higher-for longer US rates will ultimately weigh on all risk assets, including credit. However in the near term, the attraction of higher all-in yields could easily drive demand for Asian investment-grade bonds, squeezing tight USD spreads even tighter. That’s especially the case given the backdrop of satisfactory regional fundamentals and manageable dollar bond supply.”

Martin Whetton, head of markets strategy at Westpac Banking Corp. in Sydney:

“The market will be fragile, and neither the recycling of petro dollars from oil exporters swimming in revenue (ironically a cause of inflation) nor Japanese lifers and banks will rescue the market here.”

“Corporates, who had probably felt a degree of comfort that rate hikes were done and hedges could be oared back will re-assess that risk and the vol surface will go bid as the inbound phone calls to buy options cover start.”

Vassili Serebriakov, a currency and macro strategist at UBS Group AG in New York:

“It’s a rethink of the playbook for this year because if at this point we’re talking about the first cut well into the second half of the year, that sort of changes the dynamic of the market. It does feel like stronger dollar is the path of least resistance. It doesn’t meant that we’re necessarily going to extend the move over the next 24 hours, but I think it reinforces that notion.”

--With assistance from Georgina McKay, Hideyuki Sano, Finbarr Flynn and Winnie Hsu.

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