Asia equities begin modestly higher as the region bounces from the previous day’s FOMC-induced sell-off by a hawkish tone the Fed Chart Powell. There were few fresh catalysts for the moves, but they are worth keeping a close eye on month-end factors that make liquidity thin. The market depth, which shows liquidity available on the buy/side sell, on Futures and share of ETFs in equity are in severe deterioration to levels last witnessed in March 2020. With technical trades on the radar for equities, these thin liquidity conditions could cause choppy trade and large moves either way and affect the price action on correlated risk assets.
For the session ahead, the value and energy sector and its sensitive assets could again outperform as oil breaks USD 90 handle for the first time since 2014. On the radar is the OPEC+ meeting for next week, in which traders expected the cartel to ratify another production hike. Still, questions remain if the supply could meet the global demand and strong economic growth. On the macro front, participants will focus on the US Employment Cost Index for Q4, where another strong wage gain could amplify market expectations around a 50bps rate hike in the March meeting. Worth noting that Fed Powell was clear in the absence of tolerance for further rises in inflation, something which could develop due to a wage-price spiral. Some desks are starting to point for a more hawkish Fed path this year, citing those markets are under-pricing the 2022 hikes, and 5 to 7 rate hikes for the year could be a real scenario. The Russia and Ukraine tensions are still on the radar with a mixed tone.
