Asian equities could trade in a risk-off mood following a defensive day on global equities and commodity markets which filtered through into a stronger USD. Participants prompted a flight to quality in G10 assets. The DXY rallied to the best levels of the week, and it is now trading close to the December highs. Defensive plays on equities/bonds and stronger demand for USD are on the radar ahead of the potential hawkish FOMC meeting tomorrow; markets have also been trying to measure the impacts of the Omicron variant as more data is available.
On the macro front, high US yields before the Fed meeting and the flight to quality flows have weighed on emerging market equities, bonds and FX. The Asian session might follow the price action as traders could hedge and reduce exposure ahead of major risk events in the coming days. The thin liquidity conditions are also on the radar, meaning low volumes across main asset classes weigh on technical trades on futures and equities, options, with the Quadruple Witching trading on the radar for Friday. Despite the build-up to the Fed, participants will watch the Chinese retail sales and US retail sales closely to see any signals for the retail confidence that could help traders build scenarios for the year ahead on economic recovery, inflation, and fiscal/monetary policy.
