Asian markets are poised for cautious trading, influenced by Wall Street‘s volatile session amidst global geopolitical tensions and today’s US options expiry. The Israel-Hamas conflict has seen significant developments; notably, Oil and Gold prices surged in response to reports suggesting an imminent Israeli military action in Gaza and potential US naval intervention against Houthi missile launches. The geopolitical landscape further intensified with drone strikes targeting the Iraq Al Asad airbase, which houses US military personnel. Concurrently, it’s reported that the Israeli military has been authorized to proceed with operations in Gaza.
As uncertainties prevail, traders might adopt a more conservative approach going to the weekend due to risks in the middle-east and in light of the upcoming comment blackout period from the Federal Reserve’s voting members ahead of their November assembly. Recent remarks from Fed Chair Powell, emphasizing a cautious approach by the policy-setting committee, were perceived as dovish by market participants. Powell highlighted those drastic changes in financial conditions, such as elevated bond yields, would inevitably influence their policy decisions.
On the economic data front, the spotlight will be on the September release of Japan’s National Consumer Price Index. A result exceeding expectation could lead traders to anticipate a monetary policy shift by the Bank of Japan in subsequent sessions this year. Such a scenario might bolster the Yen, while driving JBG futures down. This potential shift in monetary stance might see the banking sector benefiting from adjustments in yield curve expectations. In China, following robust data releases, there’s growing chatter among trading desks that the Q4 GDP growth could surpass 5%. Yet, a wave of concern hit the markets as Chinese investors significantly reduced their holdings of US bonds and stocks, marking the largest divestment in four years. To support the aforementioned growth projection, traders will closely monitor any unexpected rate cut by the PBoC like it did in August with a 10-bps cut, particularly in the 1 and 5-year LPR later today. However, the rising US bond yields and a weakened EMFX and Yuan could restrict Beijing’s ability to implement deeper monetary easing.
