Asian stock markets may adopt a cautious approach as investors await the crucial US Consumer Price Index (CPI) release later today. Currently, no significant trends are dominating the markets, but the technology sector is in focus as there may be adjustments in positions ahead of this week’s significant options and futures expirations, which include the quarterly expirations. Additionally, attention will be directed towards Japanese manufacturing data and the upcoming Japanese government bond auction, especially in light of the potentially pivotal discussions on monetary policy and wages happening this week. The conclusion of Japan’s ‘shunto’ wage negotiations on March 13, followed by the initial results announcement by the major labour union Rengo on March 15, could influence market sentiments. A surge in positive data or increased discussions about wage growth may reignite speculation about Japan’s potential departure from its negative interest rate policy at the next Bank of Japan meeting. Such speculation might also exert pressure on Japanese stocks, especially if market expectations lean towards a more aggressive monetary tightening by the Bank of Japan.
Market volatility is anticipated as focus shifts to the upcoming US CPI data. An outcome exceeding expectation could intensify speculation about monetary tightening, potentially adjusting expectations for interest rate cuts to the second quarter and affecting risk-sensitive assets following a recent dovish response to weaker US data. Conversely, a lower-than-expected CPI could bolster stocks and bonds while weakening the USD. Therefore, monitoring US Treasury yields before and after the CPI release will be crucial to gauge market sentiment regarding the Federal Reserve’s monetary policy trajectory. On the geopolitical scene, US intelligence reports have highlighted increased trade between China and Russia since the Ukraine conflict began, including a rise in exports of goods that could have military uses. Furthermore, North Korea is anticipated to further its development of weapons of mass destruction. In a demonstration of military solidarity, China, Iran, and Russia are planning joint naval drills.
