Asian stock markets are poised for a positive session following a strong performance on Wall Street. This optimism was fuelled by China’s credit data for August, which exceeded expectations and bolstered global investor confidence. As the market processes China’s latest figures, upcoming U.S. data will be crucial leading up to the Federal Reserve’s (FOMC) decision next week. Market reactions will hinge on interpretations of this week’s inflation data and positioning ahead of Friday’s Quadruple Witching – a significant technical event marked by the expiration of various derivative contracts.
The Yuan and the Japanese Yen are closely correlated at the macroeconomic level, given the current monetary policies of both the People’s Bank of China (PBoC) and the Bank of Japan (BoJ). Notably, hawkish statements by BoJ’s Governor Ueda prompted a decline in the USD/JPY and USD/CNH pairs, slightly dimming the U.S. dollar‘s overall strength. If the BoJ continues to hint at the possibility of ending its negative rates or adjusting its Yield Curve Control, it could draw increased focus to the foreign exchange market, where local equity could rise as flows to regional markets to be preferable on yield and equity terms due to a potential end of the “Japanification era”. As the release of U.S. CPI and PPI figures nears, the US rate market sentiment suggests a more cautious stance by the Federal Reserve on interest rates, which will influence market movements around these data points.
