Asia report: Markets rise as Bank of Korea keeps rates on hold

The bullish sentiment emerged as South Korea's central bank decided to maintain its current interest rates, as had been broadly expected.

“Markets are bouncing despite a scant macro calendar and prevailing unease preceding the Jackson Hole symposium,” said SPI Asset Management managing partner Stephen Innes.

“The primary driving force behind this shift appears to be a degree of surrender among bond pessimists, as bond yields experienced a marked decline.

“This trend was mirrored in Europe, prompted by PMI figures falling short of expectations, and correspondingly echoed in the US with underwhelming PMI data.”

Innes noted that the two-year Treasury yield recorded a notable decrease, while the 10-year yield saw a more substantial drop to 4.19%.

“Despite the widespread drop in bond yields, the impact on foreign exchange relativities has remained somewhat subdued.

The euro-dollar pairing, for instance, has maintained relative stability around 1.0863.

“Conversely, the Australian dollar has garnered some uplift from the decline in US yields and a bounce in risk sentiment as the market seems to be sailing on an even keel.”

Hong Kong bourse leads broad-based gains

Japan's key indices experienced growth, with the Nikkei 225 climbing by 0.87% to reach 32,287.21 points, while the Topix index edged up 0.42% to settle at 2,286.59 points.

Leading the gains on Tokyo’s benchmark was Pacific Metals Co, which surged 5.06%, followed by Tokyo Electron and Ajinomoto Co, advancing 3.25% and 3.17%, respectively.

China’s Shanghai Composite inched up by 0.12% to 3,082.24, while the Shenzhen Component index observed a robust 1.02% jump to 10,256.19.

Cashway Technology Co and China Publishing & Media Holdings were notable market movers in Shanghai, each leaping by 10%.

The Hang Seng Index in Hong Kong outperformed other indices in the region, surging 2.05% to 18,212.17 points.

Stocks such as Country Garden Services Holdings and Country Garden Holdings were star performers, each soaring over 10%, while WuXi Biologics also posted impressive gains with a rise of 8.52%.

South Korea’s Kospi index enjoyed a growth of 1.28% to land at 2,537.68.

The index's performance was bolstered by firms like POSCO Future M, which saw an exceptional 11.14% surge, and Dongbu Steel Co, which increased by 9.69%.

Australia's S&P/ASX 200 edged higher by 0.47%, closing at 7,182.10.

Leading stocks in Sydney included Wisetech Global, which jumped by 8.12%, and ARB Corporation, closely following with a 7.9% hike.

Contrary to the region's bullish trend, New Zealand’s S&P/NZX 50 declined by 0.6% to 11,502.13.

Investore Property and Genesis Energy became significant drags, dropping 3.65% and 3.47%, respectively.

In currency markets, the dollar was stronger on the yen, as well as the Aussie and the Kiwi, rising by 0.39%, 0.52%, and 0.64% respectively.

On the oil front, prices remained relatively stable with Brent crude futures slightly up by 0.07% on ICE at $83.27 per barrel, while the NYMEX quote for West Texas Intermediate saw a minor rise of 0.05% to $78.93.

South Korea maintains benchmark policy rate amid slowing producer price growth

In economic news, the Bank of Korea (BoK) confirmed its decision to keep the benchmark policy rate steady at 3.5% during the day.

The rate, which has remained unaltered since the start of the year, aligned with predictions set by Reuters polling.

“Overall, the BoK has maintained its hawkish tone in its August meeting, continuing to signal its openness to further rate hikes,” said Kelvin Lam at Pantheon Macroeconomics.

“In our view, this is intended to shield the won from weakening excessively on the back widening interest rate differential with the US, thereby mitigating any domestic inflation risks associated with that.”

However, Lam said that with rising external uncertainty and a slowing domestic economy, the central bank was unlikely to actually raise rates this year, particularly when inflation risks had reduced somewhat.

“As a result, we believe the BoK will keep its policy rate unchanged for the rest of the year, balancing risks associated with growth and inflation.”

At the same time, South Korea's producer price index (PPI) - a barometer charting fluctuations in the prices of domestically-shipped goods by industrial producers - saw modest growth of 0.2% on a year-on-year basis in July.

That made for the 13th consecutive month where the economy observed a deceleration in the growth metric.

It also marked a slight decrease from June's revised rate of 0.3%, however, and was the lowest recorded since December 2020.

Reporting by Josh White for Sharecast.com.