Asian markets are poised for a positive open, buoyed by Wall Street‘s upbeat performance. This surge was spurred by the Federal Reserve Vice Chair Philip Jefferson’s dovish remarks regarding the implications of soaring Treasury yields. He hinted that the Federal Reserve may not need to intervene as stringent as once believed. As a result, U.S. equities rallied, and the odds for a Fed rate hike in November diminished, plunging from an initial 22% to just 12%. Moreover, the forecasted rate cut for next year has been moved from July to June.
On the geopolitical front, the intensifying Israel-Palestine conflict will capture significant traders’ attention. After the recent attacks in Israel, we observed a typical risk-averse market reaction: an uptick in Treasury futures, a jump in crude oil prices, and a bolstered dollar. This market behaviour merits attention, especially given unconfirmed reports suggesting Iranian involvement in Hamas’s latest actions against Israel. If the conflict expands to involve Iran directly, Brent and WTI oil indicators could see another upward swing, and safe-haven demand could drive short-term price action.
From a macroeconomic perspective, this week is bustling. As Chinese market players return from their extended holiday, participants will closely follow political events and key U.S. and Chinese inflation data for the Producer Price Index and the Consumer Price Index. The latest FOMC minutes will be watched closely for any dovish tilt. Additionally, the US earnings season is set to kick off, with financial institutions set to announce their figures this coming Friday.
It’s also worth noting that, due to Columbus Day, the US cash bond market was shuttered. Therefore, we can expect some catch-up technical trading in the bond markets in the upcoming session, that might affect FX and equities, as yields could see a pushback due the dovish trade executed yesterday during the US session.
