Asian markets could trade in risk-on mode as broad sentiment on global equities improved yesterday. On Wall Street, the main volatility index, the VIX, traded beneath 27 points after reaching 35 last week amid risk-off flows with Omicron variant, a hawkish Fed, and technicals play on the radar. These major themes should continue on the investor’s radar short term. Still, fears with the new COVID variant are fading as participants weigh on the reports and evidence pointing towards the Omicron being no more harmful, although more contagious. Traders will keep looking for extra data from official sources on the vaccine efficacy and the variant impact in contagion.
On the macro front coming up for the session, participants will be digesting the RBA monetary policy decision and the Chinese trade data for November. Investors will be on the lookout for the supply chain impacts in the Australian and Chinese economies. The rising China economy slowdown is weighing on regional peers. The big data point on the radar for the week will be the US CPI amid COVID Delta variant impact. Worth noting that global liquidity started to decrease as traders started packing the exposure for the year-end holiday weeks. On the Central Bank front, the Federal Reserve is in the blackout period ahead of its monetary policy decision next week. In China, the PBOC cut its RRR by 50bps which it estimates would free up CNY 1.2trln of long-term liquidity. The news will be greeted by those noting some liquidity concerns in China, which have posed threats to financial stability.
