Asian equities could trade in a mixed manner today after a similarly mixed close on Wall Street. However, a weaker dollar and lower US Treasury yields could prompt investors to seek opportunities in the region, given its cyclical exposure and capture a rally on high beta assets due to the short-term hawkish correction on core assets. The decision by some desks to remove a June rate hike from their projections, in light of yesterday’s softer-than-expected headline Consumer Price Index, is also likely to impact market sentiment with a dovish tilt, that being usually good for risk assets. Analysts now predict a final 25 basis point raise in May to 5-5.25%.
However, geopolitical tailwinds are expected to weigh on risk assets, as yesterday’s announcement by China of a no-fly zone north of Taiwan from April 16th-18th sparked concerns about potential conflict escalation. The no-fly zone encompasses Japan’s EEZ around the Senkaku island, and a 27-minute window has been allocated on the 16th. If tensions continue to rise, safe-haven flows and significant outflows from Asian assets may follow.
