Asian equities could trade on a risk-off move as global risk assets face headwinds amid a potential hawkish Fed on Wednesday. US money markets now price in a 90% chance of a 75bps hike from the Fed in the wake of the hot Consumer Price Index report on Friday, upwardly revised inflation expectations and the NY Fed surveys. The repricing and risk-off flow also gained strength as reports noted the FOMC is likely “to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week”. The USD surged on the hawkish market pricing to print a new YTD peak at 105.29.
It is also worth keeping an eye out if recent reports could be denied or supported by officials going into the FOMC decision. Desks are starting to voice out rate expectations revisions after reports, forecasts now to include 75bps rate hikes in June and July, while it now anticipates median dot to indicate the rate at 3.25%-3.50% by year-end and terminal rate at 3.75%-4.00% in 2023. Traders will also be trading this week’s options expiry on Friday and other DM Central Bank decisions ahead of the end of the quarter.
