FX168 Financial News Agency (Asia Pacific) reported that after the Federal Reserve's "hawkish rate cut," Asian investors are hoping for market stabilization as they approach the last week of trading for the year on Friday (December 20).

As the dust settles from the Federal Reserve's "hawkish rate cut" on Wednesday that triggered a global market sell-off, Asian investors are ending the last complete trading week of the year, hoping to catch a breather from this wave of market sell-off.

The tension somewhat eased on Thursday, as the Bank of England unexpectedly adopted a "dovish pause" policy, and the Bank of Japan's stance on interest rate hikes in January appeared to remain Neutral, helping stabilize the market.

Some of the market volatility on Wednesday receded on Thursday—the market's volatility slowed, implied volatility of U.S. rates slightly fell, and Forex interventions by several Emerging Markets central banks helped support their currencies. The Brazilian real rebounded from a record low, while the South Korean won also climbed back from a 15-year low.

However, the situation of "prolonged high rates" from the Federal Reserve has already begun. Wall Street failed to rebound, and the dollar once again reached a two-year high, benefiting from the strong performance of the dollar against the yen, while U.S. Treasury yields climbed again. The 10-year Treasury yield approached 4.60%, the highest point since April, increasing by nearly 100 basis points since the Federal Reserve's policy easing cycle began in September.

The surge in U.S. Treasury yields and the strength of the dollar—coupled with a significant retracement in Emerging Markets equities—have tightened financial conditions in Emerging Markets noticeably. According to Goldman Sachs, financial conditions in Emerging Markets are now the tightest since April.

As long as the dollar and Treasury yields remain high, and the Trump administration's tariff threats in Washington persist, substantial selling pressure on Emerging Markets Assets is unlikely to ease.

Analysts at JPMorgan estimate that net capital outflows from Emerging Markets totalled $105 billion in October, with China alone accounting for $75 billion, marking the worst month since June 2022. Outflows continued in November and December, although at a smaller scale.

If the US dollar continues to strengthen or market sentiment further deteriorates, more outflows in the first quarter of 2024 cannot be ruled out. The key moving forward will be the reaction of residents. Data in October indicates that residents may also channel their Capital Trend elsewhere," said Katherine Marney of JPMorgan this week.

Friday's economic agenda in Asia is relatively busy, with Japan's inflation data and China's interest rate decisions being the focus.

On Thursday, Bank of Japan Governor Kazuo Ueda stated that Japan's core inflation remains moderate. However, the continued weakness of the yen may change this situation soon. Economists expect the annualized core inflation rate for November to rise to 2.6% from 2.3% in October.

Meanwhile, the People's Bank of China is expected to maintain its benchmark one-year and five-year loan rates at 3.10% and 3.60%, respectively.

The following are important developments that may provide more direction for the markets on Friday:

Japan's CPI inflation data (November)

Malaysia's CPI inflation data (November)