Asian equities are likely to see choppy price action in the wake of Wall Street‘s mixed performance, with traders digesting the latest US Consumer Price Index (CPI) report that came in line with expectations. The lack of any upside surprises in the data triggered a rally in US Treasuries, which led to more dovish Fed pricing, with nearly 80bps of cuts expected by year-end. However, early pressure on news that a UAE sovereign fund was short-selling US stocks on growth concerns dampened the mood in the equity markets. This could work as a risk buffer for Asian equities due to its cyclical factor, as some large participants are pushing back on risk due to growth worries.
On the growth and policy front, the CNH may face weakness, while cyclical equities could see some support. China has reportedly asked banks to lower interest rate ceilings on retail and corporate deposits, effective May 15th, with the big four state banks expected to lower interest rate ceilings by 30bps and some others cutting by 50bps. This move is aimed at encouraging consumers to reduce savings and spend more but may be seen as a Yuan currency headwind in the short term.
In terms of data, investors will be closely watching for any surprises in April inflation data from China, as it could support further monetary policy easing. China’s CPI is expected to come in at 0.3% YoY, versus 0.7% prior, while PPI is expected to decline to -3.3% YoY from -2.5% prior. If the data shows a miss, the Yuan could trade under pressure, and Chinese bond rates trade higher as participants would likely try to anticipate the next PBoC move on easing.
