Asian markets are poised to embrace a risk-on approach ahead of the significant quadruple-witching event unfolding in the U.S. and Europe today, which will see the expiration of various options and futures contracts. While the technical trades will undoubtedly shape price movements, the market’s macro positioning in the aftermath of the Federal Open Market Committee (FOMC) and the European Central Bank’s (ECB) latest sessions have set the stage for expanding bond yield differentials. In the face of a diminishing dollar, the potential for stock risk-taking could increase, possibly fuelling a short-term rally in equity markets. This muted dollar coupled with a risk-friendly atmosphere has also triggered a sharp uptick in Oil prices, a development that could bolster cyclical stocks in Asia, especially considering anticipated economic stimulus measures from China.
Market focus is progressively shifting towards the impending Bank of Japan decision, with predictions largely leaning towards a continuation of the current policy framework. Traders remain vigilant for any unexpected factors, specifically changes to the Yield Curve Control or hints at possible modifications to this instrument in the future. Moreover, the market anticipates further commentary from Federal Reserve members after the blackout period, ahead of Monday’s holiday in the US where markets will be operating with thin liquidity. The release of the preliminary June data from the University of Michigan will also be closely watched as a vital barometer of sentiment following the Federal Reserve’s recent decision to halt the rate-hiking cycle, at least temporarily. As the Fed’s hawkish dot plots continue to draw attention, analysts persistently analyse the market’s response and query whether the data is robust enough to justify additional monetary tightening.
