Asia equities started trading on the back foot as seen across global markets where there was an unwinding of the reflation trade as economic recovery could show early signs that are peaking, moreover concerns with COVID Delta variant also weights on the risk sentiment. Sydney imposes stricter measures in lockdown areas. South Korea reports another record high daily COVID-19 cases of 1.316. The KDCA warned cases could peak at over 2.000 per day. Won FX forwards and spot rates are trading lower after the government imposed the most rigid restrictions on Seoul after a spike in the number of cases that officials called the start of the fourth wave.
Market participants were awaiting inflation data from China to provide catalyst data. A choppy reaction was seen after the inflation figures. China Consumer Price Index (CPI) rose 1.1 %, slightly below Street estimates of 1.2% and down from 1.3% in May. China Producer Price Index (PPI) rose 8.8%, in line with estimates and down from 9.0% in May. The Onshore Yuan strengthened against the US Dollar around 58 pips pre-announcement. The soft CPI reading could clear the way for the PBOC, who has hinted at a switch in policy bias with the chatter of a Reserve Requirement Ratio (RRR) cut and supportive fiscal measures.
