Asian equities poised to open positively influenced by recent FOMC decision

Asian equities are poised to open positively, influenced by Wall Street’s reaction to the recent Federal Reserve Committee (FOMC) decision. Last Wednesday, Fed Chair Powell indicated that rate hikes are not currently anticipated, and the Fed also announced a significant reduction in its Quantitative Tightening program. This means more funds could re-enter the market from banking reserves monthly. Consequently, the US Treasury curve shed some risk premia, bolstering global assets. Additionally, a softer dollar has redirected investments towards high-beta assets, likely enhancing capital flows into Asian markets following recent risk-off movements.

Traders are now gearing up for today’s key economic releases: the US Nonfarm Payroll report, final updates for the US S&P Services and ISM Service indices, and Apple Inc.’s earnings. The labour market is expected to show signs of cooling, with forecasts suggesting slower payroll growth and stable wages, while the unemployment rate is anticipated to hold steady. Yesterday’s market activities suggest a leaning towards a dovish interpretation, especially if the payroll and wage figures are subdued, potentially including downward revisions. Such outcomes could prompt a further dip in the short end of the US yield curve by over 5 basis points, possibly leading to early bets on a rate cut as soon as September, even during the July meeting. This scenario would likely fuel a rally in equities, particularly in tech, emerging markets, and small caps, which are currently undervalued and sensitive to interest rate changes. Additionally, comments from Fed officials as the FOMC blackout period ends today could sway market expectations, setting the tone for next week’s lighter economic agenda and upcoming Treasury refunding auctions.