Asian equities could trade on the backfoot as US equities remain underwater. Equity was affected by selling on the precious metals space, bonds and commodities, with markets positioning for a potential hawkish Fed meeting next week. Technical trades also weigh on price action ahead of tomorrow’s Quadruple Witching Day, the quarterly simultaneous expiration of options and futures contracts.
On the macro front, US yields will be a key indicator next week as market participants face a chatter leaning as high as a 5% terminal rate next year. US Short-term rates markets are now pricing in the terminal Fed rate at the upper end of the 4.25-4.5% target range in March 2023. For the session ahead, aside from Quadruple Witching flows, traders now look to today’s University of Michigan survey, particularly concerning consumer inflation expectations. If it beats the market’s expectations, it could trigger a more defensive positioning. On the FX front, is it also worth keeping an eye on the Yuan as it weakened above 7.00 in offshore quotes for the first time since 2020 with zero-COVID, geopolitical tensions over US potential support Taiwan, and PBoC easing applying pressure on the currency. With pressure from the current bid on the USD, traders will be digesting the August round of Chinese activity data. If it shows a miss, it could weaken the Yuan as more economic support from the PBoC might be needed, and equities could become less attractive amid low economic activity.
