Asian equities could trade on the backfoot as US equities traded under pressure after strong US data and tech pressure after post-earnings weakness. Gains on risk assets were also capped by rumours regarding a China reopening which Chinese officials pushed back on. China’s Foreign Ministry said it was unaware of such actions. Chinese equities could sell off amid the denial of any adjustment on the Zero Covid policy after posting strong gains yesterday heading to the close.
Traders will be keeping an eye on the Zero Covid story in China, but all focus will be on the FOMC decision, where money markets are currently pricing a terminal rate of 5%. Some starts are starting to call for a 5.25% terminal rate. Others are seeing an outlier case of the Fed having to rise to 6% in June next year. Positioning ahead of today’s event will be key to understanding the Fed’s messaging after recent dovish and hawkish price action going into year-end, where markets are pricing a slow hike pace in December of 50 bps. A dovish messaging from the Committee and Fed’s Chair Powell could boost stocks short-term, but with inflation running hot and recent strong data, the policymakers could keep with the current hawkish instance.
