Asian equity markets opened with optimism, buoyed by Federal Reserve Governor Christopher Waller’s surprisingly dovish comments. Waller suggested that sustained decreases in U.S. inflation could lead the Fed to consider reducing policy rates. This sentiment spurred a bull-steepening trend in the U.S. Treasuries and a rally in equities, as the USD weakened.
Looking ahead, the Asia-Pacific region faces a quiet data calendar, but market focus should remain on bond markets and the USD as the end of the month trading activity appears to be fostering an environment conducive to bond purchases and selling USD. The U.S. Dollar has already experienced significant selling pressure, reaching its lowest point since mid-August at 102.60. Meanwhile, the Japanese Yen has shown notable strength among G10 currencies.
Investors are now anticipating key U.S. economic data releases, including the GDP and the ISM Manufacturing Index. Market positioning is likely to lean dovish, as it’s challenging to identify any hawkish elements in the upcoming data that could alter current market pricing. With Waller’s comments opening the door to potential rate cuts, the spotlight is now on Fed Chair Powell’s remarks on Friday. His statements are expected to be crucial, potentially indicating a dovish turn in U.S. monetary policy amidst the backdrop of persistent inflationary concerns.
