Asian equities could trade on the backfoot following a sell-off on Wall Street after a hawkish statement from the upcoming Fed Vice-Chair Brainard. She is known for her dovish stance, but she stated on the balance sheet, nodded to a May commencement of Balance Sheet reduction, and said it would be “significantly larger” and at a more “rapid pace” than the prior normalisation cycle. US stocks, especially tech stocks, trundled lower throughout the whole session. Defensive flows could be on-demand in today’s Asian session.
On the macro front, worth keeping an eye on US yield and USD the session ahead as the dollar index, the DXY, beat its highest level since May 2020 at 99.494, which was supported by a move higher in yields. The cross-asset dynamics could keep driving the price action before the major event later in the day. The focus lies heavily on the FOMC minutes. It will be critical for gauging the parameters of the balance sheet runoff process. Details eyed include the pace of the balance sheet runoff, where expectations for the maximum monthly caps lie between USD 60-100bln per month of Treasuries and MBS. Whether the caps start small and grow or begin instantly at the full size will be key, particularly for signalling, given the formal announcement will likely be made alongside an expected 50bps rate hike at the May meeting. Participants trade with a hawkish tilt until the release.
