Asian stock markets are poised to face headwinds as global shares, particularly in the tech sector, trended downward. The NASDAQ shed more than 1%, and Wall Street ended at intraday lows, dragged chiefly by concerns over Apple‘s new iPhone pricing. Oracle also took a 13.5% dive post lacklustre earnings and weak guidance. Notably, many risk assets have languished in a sideways trajectory for some time now, in light of rising global bond yields. Investors, seeking solace in higher interest rates, have been leaning more towards short-duration assets and cash, often outpacing equities in annual returns.
A growing concern is the budding inflationary pressures, more so with Brent crude prices breaching the USD 90/bbl mark, a new year-to-date high, in response to OPEC’s alerts about a potential supply crunch. While the energy sector might stand firm on the back of these escalating oil prices, central banks worldwide may soon factor in these price surges when assessing future inflation. This could prompt a more aggressive rate revaluation, adding to the strain on risk assets.
Of paramount significance this week is the upcoming US Consumer Price Index (CPI) data release. Participants forecasts hover around a 0.6% month-on-month bump, largely attributed to an anticipated 6% surge in adjusted energy prices. Yet, the Core CPI, which excludes the often volatile food and energy components, is predicted to inch up by 0.2% month-on-month. The market seems to be slightly tilting hawkish in its anticipation of the release, emphasizing the importance of monitoring the core figures. Any significant deviation from expectations, be it hawkish or dovish, will likely move the US 2-year Treasury first. Given the Federal Open Market Committee (FOMC) maintaining a flexible policy stance, these releases play a pivotal role in driving the short-term treasury’s trajectory. It is worth watching the USD and the bond space before the data release as they could drive equity price action.
