Asian equities could see a firmer demand for risk as Wall Street peers traded positively, with traders positioning for what could be a soft US Consumer Price Index reading. The US dollar was weak, and it could keep supporting Asia-Pacific risk flows on FX, credit and equities, with a possibility of outperforming the tech sector and long-duration companies as global yields relief after a hawkish wave in the last two weeks.
All eyes will be on the US inflation data on today’s trade. A positive risk tone was seen yesterday after a decline in the 3-year New York Fed US Consumer Inflation Expectations, which fell 0.4pts in August to 2.76%, almost 1% lower than at the start of the Ukraine war. Recent positioning and strong price action in multiple asset classes suggest that traders vigorously call for further cooling in headline inflation. Is it worth noting that some Fed speakers said the August CPI data wouldn’t alter the Committee decision on a 75bps September rates hike. An uptick in the headline or core inflation does risk skewing the distribution of outcomes towards more aggressive tightening paths going into year-end. This scenario could cause a de-risk event as participants might have to start to price a Fed’s terminal rate higher than 3.75% reaching up to 4.25%.
