Wary start to Asian equity trade after Wall Street pulled back from record highs with risk appetite subdued as the investor focus remains on the looming FOMC meeting later today. It’s all about China today during the APAC session, as the Chinese data dump might agitate traders a bit. Participants will be watching closely for signs of slower growth in retail sales in May due to the high base from last year. As for industrial production data, strength likely continued in May. However, at a slower pace than the previous month. Traders will be paying attention to see how the change will be affected by several factors, including a high base but chip factories already running at total capacity and more robust construction activity.
Nevertheless, the main focus will be on the FOMC message and any hints they may give about taper timing. Any fresh update on the path of the Fed’s monetary policy framework could be a trigger for a sharp move in the global fixed income, FX and equity markets. In addition, traders will be looking for signs of a change in the policymakers language that price pressures are transitory. The FOMC statement and Fed Chair Powell during the Q&A session might re-emphasise that there is still progress on its labour market goals despite the improving pandemic situation. Some Fixed Income traders and money markets participants will be watching to see if the Fed will make tweaks to its administered rates (Interest on Excess Reserves (IOER) and/or the Reverse Repo Facility (RRP) rates). Recently the short-term rates are getting close to the Fed’s lower bound. The Reverse Repo Facility demand grew at a breakneck pace due to the wave of money these institutions are holding as the US Treasury has been halving its huge balance at the so-called Treasury General Account (TGA) at the Fed.
