Asian stock markets may face challenges due to the Federal Reserve’s recent stance against an early interest rate cut, impacting risk-sensitive assets such as stocks, foreign exchange, and global credit markets. In particular, Chinese markets are also experiencing strain, contributing to the cautious sentiment among investors in Asia. This caution stems from the lack of clarity on additional economic support measures, making market participants hesitant to increase their exposure to Asian markets due to their strong ties with China. Any fiscal support announcement could boost risk demand in the short term.
In terms of economic indicators, short-term risk appetite is largely influenced by the US market dynamics and the US dollar’s performance. Therefore, upcoming US economic data and statements from Federal Reserve officials will be crucial. A notable increase in the ISM Services report’s prices paid index yesterday led to a rise in US bond yields, reaching new highs for the year. This development has put downward pressure on foreign currencies against the US dollar and affected equity markets. Moving forward, market participants will closely monitor the Reserve Bank of Australia’s policy announcement, especially after recent speculations of a rate cut were quashed. Although the focus will be on any forward-looking statements regarding interest rates, remarks from Federal Reserve officials, particularly any softening of their recent firm stance on rate cuts, could lend support to risk assets in the coming days.
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© 2019 High Leverage FX - All Rights Reserved.