Asian stock markets are poised for cautious gains, buoyed by softer US interest rates following a well-received US Treasury 10-year note auction, which has assuaged fears of a supply-demand mismatch affecting bond term premiums. The market is now eyeing the upcoming 30-year bond auction later today, especially after last month’s underwhelming performance. The week’s earlier auctions, including those of 3-year and 10-year US notes, have been met with optimism, mitigating some of the market’s concerns. Equity market movements seem tightly linked to these auction outcomes, as robust demand for US bonds is generally taken as a positive sign, whereas tepid demand suggests a need for higher yields to attract buyers, coinciding with the Treasury’s increased supply projections due to significant refinancing needs.
On the geopolitical front, there are reports of Presidents Biden and Xi taking steps to reopen military communication lines, which could stabilize US-China relations and minimize the chance of military missteps. However, there is noticeable hesitancy among offshore companies to conduct business in China, compounded by American and European executives’ fears of potential conflict over Taiwan in the future. The focus is also on China’s Consumer Price Index (CPI) and Producer Price Index (PPI), with traders scrutinizing these figures for signs of economic strain. A deviation from expectations in these metrics could indicate persistent domestic deflationary threats, potentially leading to heightened calls for substantial fiscal intervention.
