Asian equities could experience significant selling pressure as global stock markets have seen major sell-offs triggered by an unexpected rise in the US Q1 Employment Cost Index. This suggests that the Federal Reserve may maintain its hawkish stance. Traders are eagerly awaiting Federal Reserve Chair Jerome Powell’s address later today. Following the release of yesterday’s US employment cost data, market expectations for rate cuts this year have been revised downwards from 35 basis points to under 30 basis points. Rate-sensitive sectors like technology and small-cap stocks in Asia could face intense selling pressure. Observing US Treasury yields and USD demand will be crucial.
Looking forward, the focus is squarely on US data and markets. Today’s market movements could react sharply to risk unwinding and hedging ahead of pivotal US data releases and events. The schedule is packed with the Fed’s announcement, US JOLTS job openings, ADP employment report, and ISM manufacturing data, culminating in Friday’s crucial non-farm payroll report. Amid these developments, the FOMC is widely expected to keep the interest rate steady at 5.25-5.50% during its May meeting. Despite signs of strong economic growth and persistent inflation, recent Fed communications indicate a cautious approach towards easing monetary policy. Market participants will pay close attention to Chair Powell’s remarks for any indications of a shift towards a rate-cutting cycle and updates on quantitative tightening plans. Traders will also focus on the US Treasury’s Quarterly Refunding Announcement, which sparked some selling on Monday due to its larger-than-anticipated refunding size; the US Treasury bonds’ price action will be a key indicator for assessing risk.
