Asian equities could trade on the backfoot as global markets saw another selling in indices and bonds after a contagion effect from the BoE Governor Bailey’s ultimatum for pension funds that the Gilt buybacks will end this Friday, despite requests from the industry to extend the programme. Traders will also be positioning carefully as the European and UK markets open later in the session and could bring extra volatility with the end of the buybacks.
On the macro front, defensive traders could be seen across equities, FX and bonds as participants are warming up for key risk events, including the FOMC Minutes later today and the US Consumer Price Index tomorrow. It is unlikely that there will be any pushback on the recent hawkish narrative that has been putting pressure on risk assets and traders sitting on cash. Inflation is still a problem globally. The job market in many parts of the globe, especially the US, is still strong. Although it is worth noting that traders tend to trade the future, not the present macroeconomic outlook. The USD and bond yields could play a decisive role in the session ahead if markets face another selling wave amid increasing volatility and contagion effect. The US earnings season will add further cautious mood as expectations are not positive due to increasing labour costs, inflationary pressures, higher borrowing costs and flat economic growth for next year.
