Asian equities could trade choppy following a light session on Wall Street after yesterday’s bloodbath price action due to a hot US Consumer Price Index reaction. Traders are now eyeing next week’s FOMC to see if a more aggressive front-loading will be delivered. Some desks are now expecting a 100-bps rate hike, and chatter of a 5% Fed Funds terminal rate is gaining some ground. A more aggressive Fed decision and a potential higher ‘dot plots’ could weigh heavily on risk assets in the coming days as recession fears and EPS projects on equity will have to revise lower. Higher rates on credit would also cause a sell-off on credit, especially corporate credit, high yield bonds and emerging market debt.
Now on the macro front, some positive news from China helped some metals and Oil benchmarks after reports noting that China’s Chengdu, capital of Sichuan, is to ease COVID restrictions from Thursday gradually. Also, some fiscal and monetary support could bring some relief to local equities and credit. China’s cabinet is to extend tax reliefs for some small firms and encourage commercial banks to make medium- and long-term loans to support equipment upgrades at an interest rate of no more than 3.2%. There is a boost from the PBoC that will be making a special ‘relending’ facility of CNY 200bln to support the cabinet’s initiative. Looking ahead, traders will watch the US data releases closely as risk remains higher. So it is worth keeping a close eye on the packet session with US Philly Fed Manufacturing Index, Industrial Production, Retail Sales and Initial Jobless Claims. It is unlikely that the data will shift market pricing again before the next week’s FOMC, but some volatility around the data could be seen.
