Asian stock markets may experience a downturn following a volatile session on Wall Street, as a widespread selloff was triggered by notable declines in the Nasdaq due to disappointing earnings from tech giants like Microsoft and Alphabet. The banking sector, particularly regional banks, felt the tremors from a discouraging report by New York Community Bancorp, causing a ripple effect that impacted on risk assets, raising concerns about the regional banking sector’s stability. This turbulence led investors to flock to safe-haven assets in anticipation of the Federal Reserve’s upcoming announcement.
In the realm of bonds, the market saw an influx of traders moving towards safer assets, driven by apprehensions surrounding the regional banking sector and weaker-than-expected U.S. economic data, including the Employment Cost Index (ECI), ADP employment report, an inline US Treasury Refunding Announcement and Chicago PMI. The markets were further jolted by Federal Reserve Chair Powell’s hawkish comments, which tempered expectations for a rate cut in March when he noted that he does not think a March rate cut is likely, saying that it is not the base case, caveating that it remains to be seen and it all depends on how the economy evolves, but he does not think the Fed will have enough confidence by March. As the trading month of February begins, the focus shifts to how these evolving dynamics will play out, with traders seeking short-term protection amidst the prevailing uncertainties. The upcoming U.S. data, especially the Nonfarm Payrolls report, will be crucial in shaping market sentiment. The Japanese Yen stood out in the forex markets, strengthened by a hawkish summary from the Bank of Japan that suggested a possible end to the negative interest rate policy (NIRP), lending support to the Yen. Additionally, the Chinese PMIs are under scrutiny, as a miss on these indicators could dampen risk asset sentiment and raise questions about the effectiveness of recent policy measures by Chinese authorities in bolstering the economy.
