Asian equities could trade choppy after a mixed trading session on Wall Street, with main equity indices having pared early losses, with the technology sector under pressure as US Treasury yields climbed after strong US data. Traders are eyeing tomorrow’s Nonfarm Payrolls. If the report comes stronger than expected, the USD could keep breaking its 20-year high as a defensive bid hits the tape, and US yields rise as a Fed repricing. That price action could pressure global risk assets as rate differentials could trigger another leg lower. It is worth noting that despite the recent de-risk in US equities, the term structure of the fear index, VIX, is edging higher but with no clear signal of stress. With that on the radar, if the Job reports come soft, some hedging unwinding activity could be seen cross-asset, triggering a risk-on price action.
Participants are also keeping a close eye on the volatility in the energy sector. Now, a $5 to $10 intraday range for Oil benchmarks is the “new normal”, with thin liquidity affecting positioning. Oil prices extended the sell-off amid the defensive demand, new lockdowns in China and a stronger dollar. Participants are also digesting recent data after the PMIs reports this week that showed that global growth is clearly slowing, and risks of outright recession are rising as high inflation prints are cutting investment and consumer spending.
