Asian equities will likely exhibit mixed trends as market participants await crucial decisions from the G7 Central Banks. Despite this, China and its neighbouring region may continue to experience a robust risk-on trade due to potential macroeconomic tailwinds. This boost to risk assets is encouraged by the People’s Bank of China’s recent reduction in the short-term lending rate, along with hints that China is contemplating methods to stimulate its economy.
Simultaneously, the imminent FOMC decision prompts traders to adjust their positions on the rates, equities and the FX markets, particularly after the hint of a hawkish tilt in recent activities. Speculation suggests the Fed may adjust its ‘Dot Plot’ projections, a development that previously caused a US Treasury market reversal following an initial surge due to softer US CPI data, especially at the curve’s front end.
The anticipation surrounding the FOMC meeting has intensified, as the accompanying ‘Dot Plot’ will play a crucial role in defining the steady rates as a ‘pause’ or a ‘skip’. If there’s no elevation in the 2023 median rate dot, it is difficult to categorize the situation as a ‘kip’, suggesting a decrease in influence among the hawkish members. On the other hand, dovish members might be reluctant to endorse further hike guidance, expressing concern over potential implications for the banking sector – a sentiment that resonates more with the Fed’s leadership.
