Asian equities could trade positive after markets traded with a risk-on appetite after the US Consumer Price Index was cooler than expected. Participants reacted with a dovish tilt after the data, and the rates markets are now pricing that for the September meeting, the Fed will lean towards a 50-bps hike rather than 75-bps after the US Jobs data last Friday. Asian markets could see risk-on demand on equities that could be supported by a weaker dollar.
On the geopolitical/trade front, reports are noting that US President Biden’s administration is rethinking potential tariff moves after China’s response to Pelosi’s Taiwan trip and set aside, for now, the option of scrapping some tariffs on China or investigating adding more. A tail risk for markets could be potentially more tariffs on China, which could lead to a ‘phase 2′ trade war that was started with President Trump. It is worth keeping an eye on the theme as it evolves in the coming weeks. Looking ahead, traders will be watching the Fed’s speakers’ reaction to the recent US CPI data and a holiday in Japan helps to tighten liquidity.