Asian equities could trade range-bound after the initial gain on Wall Street bourses faded through the NY cash session. Drivers were pale for macro sentiment, with most participants rather awaiting Friday’s US Consumer Price Index with reports pointing that the White House expects elevated inflation numbers to be released. Also, weighing on price action was the wake of the new SEC rules on markets as it takes a tighter grip on regulation. It is worth noting that the US yield curve steepening and strong Dollar correlation is back on the playbook, causing some intraday volatility on risk assets.
On the inflation and trade front, investors are now eyeing Chinese assets going to 2H as China is said it is to boost opening further up, and that downward economic pressure is still prominent while it is to attract foreign investment actively. On the trade front, some tailwinds could arrive from inflationary worries in the US as political pressures are starting to shake the walls in Washington. Early today, US Treasury Secretary Yellen said that some tariffs on Chinese goods do not serve US strategic interests, and the Biden administration is looking to reconfigure tariffs in a way that would be more strategic. A tariff revision could be seen as positive for China’s economy in the second half of this year and might work as a short-term tool to address cost pressures on US consumers.
Later in today’s sessions, traders will watch the ECB policy decision closely with markets pricing a hawkish decision as short-term interest rate assets prices at zero by September. A 50bp hike in July is not a consensus right now, but it gives room for a hawkish reaction. However, the probability of a one-off 50bp hike or a series of such hikes from September onward is rising. Traders will also be looking for any anti-fragmentation tool details deployed in the coming meetings to address the widening credit spreads between developed and peripheral economies in the Euro Area.
