MANILA (Reuters): Emerging Asian equities and currencies extended gains from early trade on Monday, with Philippine shares climbing nearly 7%, as a preliminary US.-Iran peace agreement brought oil prices down, bolstering expectations that borrowing costs could dip.
The MSCI's gauge of EM Asia shares was up 3.1% to its highest level in more than a week as equities in South Korea and Taiwan closed 5.2% and 2.8% higher, respectively.
A tentative US.-Iran agreement pushed crude prices below $80 per barrel for the first time since March, easing pressure on emerging-market assets hit by elevated energy costs.
It also boosted expectations that softer energy prices could ease inflation globally and reduce pressure on central banks to raise or keep interest rates elevated.
"It's positive for risk assets, positive for risky currencies, negative for the U.S. dollar," said Imre Speizer, market strategist at Westpac.
Equities rallied across the region. Stocks in the Philippines rose as much as 7% to log their best intraday session since late March, 2020.
Jakarta stocks advanced as much as 5.6% to their highest since May 21, extending gains to a 19% rise over five sessions since Bank Indonesia's off-cycle rate hike last Tuesday.
Major lenders Bank Central Asia, Bank Mandiri , and Bank Rakyat Indonesia rose between 5.6% and 6.8%. Stocks in Singapore and Malaysia added 1.1% and 0.4%, respectively.
Currencies also gained ground against a weaker dollar, with the Indonesian rupiah climbing more than 1% to 17,680 per dollar, its strongest level since May 22.
The South Korean won touched 1,503.9 before easing to around 1,513.3 in afternoon trade. The U.S.-Iran deal could ease pressure on central banks meeting this week, tempering the need for tighter policy to counter inflation risks from higher energy costs.
Market participants are split on monetary policy decisions in Indonesia and the Philippines this week, while a majority expect Taiwan's central bank to keep policy rates unchanged.
"While inflation pressures would likely abate as global crude oil prices decline and supply constraints related to the Strait of Hormuz ease, so would the negative growth risks," Barclays economists led by Brian Tan said in a note.
"To be sure, this could encourage central bankers to hold off on near-term moves and seek for more time to assess how the economic situation evolves before tightening monetary policy."
Nevertheless, analysts warned that price pressures from the war could persist in the coming months, while questioning whether the latest recovery in Asian currencies has staying power.
"Inflation will continue to be fairly moderate because of these few months of price pressures... Overall, it is still too premature to expect that Asian central banks have room to ease," said Jeff Ng, head of Asia macro strategy at SMBC.
Investors are also focused on the US Federal Reserve's June 16-17 policy meeting, the first to be led by newly appointed Chair Kevin Warsh. - Reuters
