Asian equities may decline due to rising tensions from the Israel-Hamas conflict, influencing global markets. Oil prices closed higher while equities were down. Adding to the downturn, risk assets took another hit from a sudden shift in the US Treasury curve. US Yields rose by over 10 bps, with no obvious reason. Notably, the rise was led by the front and middle sections, pushing the US 2-year yield to a new peak at 5.24%. The price action on US bonds is back to being a leading indicator for short-term risk appetite on global markets, so it should be on the watchlist for the sessions ahead, especially before the Fed blackout period that starts this Friday.
On the equity markets, a catch-up trade could be seen in Asia as the dip in tech on Wall Street was fuelled possibly by portfolio positioning shifts by hedge funds and other institutional participants as well as retail, especially as the AI/Tech sector suffered after the US confirmed a new rule that expanded license requirements for chip making equipment to 21 countries other than China. However, it is also worth noting as a potential tailwind or risk-off buffer is that chips for consumer utilities like gaming and smartphones should remain stable with no additional licensing requirements.
Global economic themes are currently unpredictable. It’s essential to monitor the oil market, especially after a surge influenced by speculations of the US considering military intervention in the Israel-Hamas situation. This consideration grew after a hospital strike in Gaza led to around 500 casualties. The key factor could be Hezbollah’s potential involvement in the conflict.
In the currency market, the Dollar held steady, but USD/JPY dipped following news of the Bank of Japan’s possible inflation forecast hikes, which many interpreted as a sign of increased caution. If the US Treasury continues to face selloffs bolstering the USD, JPY might breach the 150 level, prompting traders to anticipate possible intervention by the Bank of Japan. In today’s session, participants will closely observe China’s economic indicators, such as GDP, Retail Sales, and Industrial Output. Any miss on the readings may lead to adjusted GDP forecasts and increased calls for stronger economic measures, including further rate cuts.