Asian equities could trade mixed after a strong risk-taking for investors with a dovish speech from Fed Chair Powell and month-end price action. Traders will now be on the lookout for the incoming US Nonfarm Payroll data, which could support risk-taking amid dovish market pricing as the easing of financial conditions in the US was evident in the S&P 500 volatility index crossing beneath 20. The Dollar was weak against major and EM currencies. US Treasury yields continued their fall also to multi-month lows.
Looking ahead, it is worth noting that recent US data releases came softer than expected. If the US Nonfarm Payrolls show a strong miss, that could trigger another risk-on-leg. The case for a Fed dovish pivot will be stronger as traders could understand that the Fed might achieve a soft landing on the economy and might slow the hiking pace going into next year. Money markets are pricing in a dovish Fed with a terminal rate between 4.75-5.00% while heavily tilting towards a 50bp hike in December. Talks and money market pricing of potential cuts in 2023 are now growing.