Asian equities could trade in a defensive mood as global equities traded down as the USD was bid, and US yields traded higher after markets yet digesting the hawkish press conference from Fed Chair Powell. Discussion on high terminal rates is back on the table with no clear signal of a dovish ‘pivot’. The risk tone for Chinese equity names was also not supported as traders saw another decline in Chinese Caixin PMI data. China’s National Health Commission reiterated adherence to the zero-COVID policy to add further pressure on the coming data expectations.
On the COVID front, Australian equities were under pressure as underperformance in the mining-related sectors led to broad declines in the index and after the New South Wales Chief Health Officer warned of a looming wave of COVID infections. Geopolitical tensions are rampant with what seems to be daily missile tests from North Korea. It is worth keeping an eye on, with the US and others requesting a UN Security Council meeting today to discuss North Korea. At the same time, the US and South Korea have pledged to extend military drills in response to the missile firing. On the macro front, traders will be waiting for the key risk event of the day, which is the US Nonfarm Payrolls, where consensus looks for a 200k rise. There will be special attention on the wage measures as any downside could provide the Fed room to downshift the pace of rate hikes in December. A weak headline could also see comments for the Fed to slow its normalisation become louder as the central bank aggressively tightens policy into a restrictive territory to cap inflation. It is worth watching the US Treasury market and USD going into the event. A beat on the pack could force the market to price a higher terminal rate, which could go up to 6% next year.
