Asian equities could trade lower as markets start to adjust positioning around hawkish Fed expectations after the hot US jobs report on Friday. Money markets are now pricing the Fed Funds terminal rate just above 5.1% for June this year versus below 4.9% before the report. The long-duration sector as tech could be under pressure due to its sensitivity to the rise in medium and long-term rates. On Wall Street, declines in the stock market were led by the heavy-tech weighted Nasdaq 100.
On the macro front, some volatility could be seen in the coming days on Japanese equities, bonds and FX markets as the Japanese government is likely to present nominees for the new BoJ governor next week, according to recent reports. Traders are now betting on a dovish name for the BoJ Governor successor, as reports noted that it looks increasingly likely to be the most dovish candidate, the BoJ Deputy Governor Amamiya. The Yen was then under pressure after that. On top of this, the Japanese currency saw weakness as a function of yield differential as US rates steepened amid the Fed repricing. For the week ahead, traders will keep closely watching FOMC members’ remarks around the recent jobs/wage report, especially Fed Chair Powell, which is set to speak on Wednesday.
