Asian equities are poised to open on the backfoot following significant shifts on Wall Street, where stocks, bonds, and commodities experienced turbulence. This tumult was heightened by a strengthening Dollar and increased long-end US bond yields, driven by unexpected US CPI data and a lacklustre 30-year bond auction by the US Treasury. Notably, this auction saw the largest portion, 18%, left with Primary Dealers since December 2021, emphasizing concerns over Treasury supply and demand dynamics. This imbalance has been pivotal in the rising yields recently.
In Asia, market participants will closely scrutinize the forthcoming Chinese CPI/PPI data and September trade statistics. While this data may shed light on the health of the Chinese economy, especially after measures taken by Chinese officials, the property market stands out as a significant risk indicator. Calls for further stimulus are growing, and if the data points to weakening, the market will be on edge for potential government responses in the coming weeks.
Forward-looking, participants eagerly anticipate Friday’s preliminary consumer sentiment and inflation expectation data from the University of Michigan for October for further inflationary insights. Also awaited are financial updates from banking giants such as JPMorgan, Citigroup, Wells Fargo, and BlackRock, with all eyes on the EPS and revenue, and forward guidance due to pressure of higher yields ahead. On the geopolitical front, escalating tensions in Israel-Palestine pose a significant risk. Market participants might reduce risk exposure as the weekend approaches, considering the volatile nature of the situation. It’s essential to highlight how US bond yield movements influence short-term price action. On a special note, with soaring long-term yields, there’s a potential upward trend for USDJPY, eyeing last Friday’s peak of 149.53. A crucial marker for traders is the 150.00 threshold, where Japan’s Ministry of Finance and the BoJ may step in or traders try to front-run any potential FX intervention around the level, causing some short-term volatility to the current.
