Asian equities could trade firmer after a volatile trade on Wall Street, where markets pared yesterday’s US open sell-off. After the knee-jerk hawkish reaction, equities went down, and yields went up, to the fall in initial jobless claims and upward revisions to US Q4 Core PCE data. The selling pressure was reduced as the US 10-year US Treasury yield failed to break the key 4% level. Traders will now be positioned for today’s PCE data and Fed Speak agenda. Any beat and hawkish tilt from the Fed could add more pressure to risk assets, especially equities, which seem most sensitive to hawkish repricing.
On the macro front, some tailwinds for Asian assets could emerge from the geopolitical space as China and Russia are reportedly negotiating the purchase of 100-strike drones. The main focus for bonds, FX and even Japanese traders will be on the new Bank of Japan Governor Ueda’s confirmation hearing in parliament. Present BoJ Governor Kuroda said yesterday that the central bank will continue easing until the 2% inflation target is sustained. Recent remarks by Ueda are in-line with this, although any comments about the longer-term outlook will be closely monitored as they could drive assets towards a hawkish tilt. From a price action perspective, currency options markets are not expecting a high directional move, with 1-week implied volatility not too far off recent lows. With that, technical plays could be in place if the event doesn’t bring any change to the short-term or long-term outlook.
