Asian equities could trade under pressure as global equities sold off yesterday as participants are waiting for today’s FOMC decision. Key markets are the USD and US Treasury yields to watch before the meeting, as the curve is steepening and putting risk assets under pressure. The credit market could feel the pressure in Asia as core US yields are back toward cyclical highs, and the risk of hawkish surprises from the Fed and BoJ, as well as a possible US government shutdown ahead of the December deadline, is causing some rates to be repricing this week.
Apart from the FOMC rate decision, the macro agenda will be quiet as all focus will be on US trade. It is worth noting that the Fed Funds implied rates consolidate a modest increase, and it is currently pricing almost 50/50 probability of another hike whilst end-2024 rates have recently shifted almost exactly to the June FOMC dot plot projection. With that on the rate markets, a key highlight for the upcoming meeting will be fresh Economic Projects and the updated dot plot. That could trade market repricing of the whole curve up to December 2024. It is crucial to understand the price going into the event as markets seem quite priced back to past meetings, which create conditions for hedging, unwinding, and repricing of rates. Fed and Powell’s messages could bring a monetary policy forward guidance that differs from the current conditions.