Asia wrap: Faltering on chilled US rate cut expectations

Asian markets wobbled on Thursday, mirroring Wall Street's stumble, as unexpectedly strong U.S. data put a chill on Fed rate-cut expectations. The regional index is set for its worst month since August 2023, while China and Hong Kong stocks managed to eke out gains, thanks to a rare expansion in Chinese manufacturing—a direct nod to recent stimulus moves starting to show some bite.

But the election jitters loom large, with investors wary of taking on new risk as the U.S. election countdown begins. The fear? A Trump win could trigger fresh tariffs on Asian exports, sending ripples across the region.

Oil prices are riding a high, buoyed by optimism around U.S. fuel demand after an unexpected drawdown in crude and gasoline inventories. Add in hopes for a China-driven stimulus surge and rumors that OPEC may push back its production increases, and you’ve got a recipe for some short-term buoyancy in oil.

The yen is holding steady in a tight range as the Bank of Japan stays on hold with rates, but the real buzz is around Governor Kazuo Ueda’s upcoming press conference. Investors are hanging on his every word, hoping for any hint of a rate hike if yen weakness intensifies. We’re not quite at the “spooky” USDJPY levels that would press the BOJ’s hand. Yet, if Trump retakes office, it could fuel a fresh wave of global inflation, pushing bond yields up and dragging USD/JPY higher—possibly nudging the BOJ toward action faster than expected.