Asian equities may exhibit mixed trading patterns, buoyed by recent initiatives from China, such as the People’s Bank of China (PBoC) reducing the Reserve Requirement Ratio (RRR) to enhance liquidity and bolster the Chinese economy. Additionally, there are reports of regulatory bodies urging funds to limit short selling in stock index futures. Attention should also be paid to potential further support measures for equity markets, especially with expectations of an official announcement for a stock market package possibly coming this week. Should these measures exceed expectations, we might observe a short-term strengthening in equity markets.
In the U.S., the correlation between yields and equity markets is noteworthy today. The yield curve of U.S. Treasuries is adjusting in response to the Treasury notes auction. After a lacklustre 5-year bond auction, rates increased in the afternoon, with the 10-year yield reaching 4.20%. This rise in yields coincided with a peak in stocks, leading to a pullback in global equities, including the S&P and Nasdaq, which retreated from their record highs. Market participants are now focused on the upcoming U.S. quarterly GDP data, with expectations of a 2% annual growth rate in the last quarter of 2023. If the data confirms another year of solid growth, it would support the Federal Reserve’s efforts to achieve a “soft landing” – reducing inflation to the central bank’s 2% target without causing an economic downturn. Positive data could bolster both equities and the USD. Conversely, a shortfall in the GDP figures could first impact the U.S. yield curve, then the USD, potentially introducing volatility into the equity markets. The extent of this impact could raise concerns about the actual growth of the U.S. economy and the effects of monetary policy. Hence, it’s crucial to closely monitor any revisions to this data.
