Equities in the Asian market could trade with somewhat negative bias as Wall Street saw choppy trading and closed on a downward trajectory. This decline was particularly pronounced in the small-cap sector, reflecting caution among traders awaiting Nvidia‘s earnings report post-market. Initially, Nvidia’s earnings prompted a 5% surge in after-hours trading, later moderating to a 2% increase. However, given the substantial interest in the tech/AI domain, market participants may continue recalibrating their expectations throughout the trading session. Notably, the US volatility term structure indicates a significant compression leading up to the June FOMC meeting, suggesting that the market might operate within a narrow range, interspersed with sporadic directional movements as Nvidia’s results and key economic data are absorbed. This will be the main driver for capital flows to Asian-Pacific assets, as it seems that participants are now on hold and adding exposure strategically, waiting for more clarity on the macro landscape – inflation and growth dynamics – in the coming months.
On the macroeconomic front, the recent release of minutes from the April FOMC meeting underscored policymakers’ apprehensions regarding persistent inflationary pressures. Some members of the Fed expressed readiness to consider interest rate hikes should inflation fail to converge towards the central bank’s 2% target. Although there was a somewhat hawkish market reaction, it remained subdued. Attention is now focused on upcoming Flash PMIs, Preliminary University of Michigan sentiment data, and the US Core Personal Consumption Expenditures (PCE) figures by month-end. Expectations surrounding these data releases are modest, indicating a potentially subdued market environment until the emergence of significant catalysts, such as shifts in global central banks’ rate trajectories and inflationary outlooks.
