Asian markets are poised for a mixed trading session as participants increasingly align their strategies for the final week of crucial risk events this year. This period includes important Central Bank decisions and the expiration of quarterly options/futures on Friday. Notably, the market may lean slightly positive, influenced by Wall Street‘s upbeat performance following a successful US 10-year Treasury auction, which saw bond yields ease and equities, particularly the Nasdaq, make significant gains despite some underperformance in heavyweight stocks. Semiconductor firms are poised to lead the sector, contributing significantly to this positive momentum.
This week’s key Central Bank decisions are especially pertinent, warranting close monitoring of the FX markets for momentum insights. The Japanese Yen is of particular interest, having experienced a sell-off after last week’s rally. This trend was shaped by dovish indications from the Bank of Japan, hinting at a continued Negative Interest Rate Policy (NIRP) in the upcoming December meeting. Meanwhile, the US Dollar has maintained relative stability, with the market now anticipating the next 30-year bond offering. The Chinese Yuan showed slight weakness against the Dollar following China’s recent inflation report, which revealed lower-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) figures. Concurrently, Chinese leadership reportedly began a private meeting to discuss economic goals and potential stimulus measures for 2024.
Traders are also gearing up for today’s US Consumer Price Index (CPI) data release, with particular attention on the November core CPI inflation. Consensus estimates indicate a month-on-month increase of 0.3%. However, the market is bracing for a marginally higher rise, propelled by a rebound in core non-rent service components and a spike in used vehicle prices. Both rates and equity markets are heavily anticipating a dovish outcome. A significant hawkish adjustment for the 2024 rate path is likely only if the data deviates by more than 10 basis points from expectations. An in-line figure could also be interpreted as hawkish regarding the projected 125 basis point cut for 2024. Conversely, a lower-than-expected result could reinforce the 125-basis point reduction in 2024, potentially triggering another surge in risk assets.
