Asian equities are trading higher and taking the momentum from the gains on Wall Street where the major indices closed higher, at session highs amid a rally in growth stocks as oil prices retreated below USD 100/bbl. It is worth keeping a close eye on growth stocks in the Asia-Pacific growth sector as they could outperform due to their heavy correction. Single stocks exposed to Energy and commodities could underperform as participants are strongly unwinding hedges amid Russia/Ukraine’s mild positive signals from peace talks and COVID-19 lockdowns in China.
Traders are also positioning into the FOMC rate decision later in the session and eyeing the accompanying Fed Dot Plot to see how hawkish the voting members are after recent inflation and growth concerns due to war in Ukraine. The Fed is set to deliver a 25bps rate hike today and indicate that following hikes are minded as growth remains strong and inflation remains high. The meeting’s statement may allude to the upcoming Quantitative Tightening announcement. Market consensus points to Fed dot plots showing six hikes in 2022 and a Fed funds terminal rate at 2.75-3.0% in 2024. The risks would seem to skew to higher US Treasury yields tomorrow, particularly with fixed income positions turning more neutral in recent weeks. The session’s main asset drivers could be the USD against low yielding currencies like the Yen and Euro, the US Treasuries curve, gold and the growth sector.
