Asian equities are poised for a positive session, buoyed by a rally in global markets, particularly in the tech sector. Leading the charge, companies like Microsoft are drawing investor attention due to developments with Open AI and expectations for lower U.S. short-term and long-term yields, which are fuelling robust equity inflows. Monitoring the U.S. yield curve is crucial to assess the appetite for riskier assets, especially ahead of the upcoming release of the Federal Reserve’s (Fed) Minutes. The U.S. Treasury market experienced a bull-flattening trend, particularly after a well-received 20-year bond auction, which subsequently boosted major stock indices and weakened the U.S. Dollar.
As traders navigate a week shortened by the U.S. Thanksgiving holiday, anticipation is building for the release of the Federal Open Market Committee (FOMC) Minutes later today. These Minutes are expected to shed light on the Fed’s future policy trajectory. The market sentiment remains somewhat mixed regarding the size of Fed rate cuts in 2024, with some segments of the yield curve pricing in aggressive cuts. A hawkish tone in the Minutes could dampen risk appetite, especially if the Fed expresses concerns about rapidly easing financial conditions caused by the curve flattening and equities rally amidst persistent inflation above the 2% target. Conversely, a dovish stance could ignite a global surge in risk asset purchases, potentially leading to further easing in the U.S. yield curve and more aggressive rate cut expectations for 2024.
