Asia equities are trading on the backfoot despite the recovery on Wall Street, where the major indices finished a volatile session in the green after the Nasdaq rebounded from a 4% intraday slump. A chunky buying flow led the upside into the U.S. close, meaning large passive index funds seeing some inflows. Russia/Ukraine tension also weighed on the cross-asset risk-off part of the session. However, it is worth factoring two important events that also played in the price action: 1) retail investor selling activity on the U.S. cash open, with more than $1 bi selling hitting the tape, according to some major desk trading reports. 2) a continuation of adjustment to a critical monetary policy accommodation stance, with the Fed, set to signal a March rate lift-off on Wednesday with markets fully priced for a 100 bps hike this year and Quantitative Tightening coming earlier than expected.
On the COVID front, traders will keep a close eye on the reports related to the increasing COVID impacts in the region as South Korea new COVID-19 cases increased by more than 8,000, which was a new record high. On the macro front, F.X. and fixed income traders are digesting the Australian CPI YY (Q4), which came at 3.5% versus 3.2% expected. The AUD/USD immediately moved higher by 26 pips. This is likely to sustain further buzzes for the RBA to end its Q.E. purchases when they expire in the middle of next month and could prompt more calls for the central bank to hike sooner after the recent strong employment data. For the session ahead, participants will be eyeing a potential hawkish USD price action against low-beta currencies and some mild U.S. Treasury curve flattening early at a highly expected hawkish FOMC meeting on Wednesday. Risky assets such as equities could trade choppy. Russia/Ukraine is also a major theme to watch.
