Asian equities could trade positive after strong gains in US stocks with a Fed Chair Powell easing fears during the press conference of a more hawkish rate hike path. Powell caused some choppy price action when he said inflation is much too high, and they are moving expeditiously to bring inflation down, which is essential to keep a strong labour market. Then the focus shifted to the rate path. Markets went to the full risk-on mode when Fed Powell said 50bps increases should be on the table at the next couple of meetings and that 75bps increases are not something they are actively considering.
On a cross-asset basis, the USD weakened, and US short-term interest rate curve and T-notes were underpinned after Fed Powell’s 75 bps refutation. Long duration assets outperformed, with Nasdaq gaining +3.41% and the S&P 500 closing up +2.97%. Fed now has pivoted to a hawkish stance as expected. Now participants will focus on data flow, especially the labour market and inflation. It is worth noting that this Friday, the US will be releasing the Nonfarm Payrolls, with wages and inflation expectations being critical factors to monitor. Also, next week, the Consumer Price Index could be a major risk event for markets if there is any strong miss or beat. For the session ahead, liquidity could improve amid risk-on flows to EM, and China will reopen after the Labour Day Holidays. Traders will be keeping a close eye on the Chinese Caixin Services and Composite PMI to better gauge the impacts of the COVID-zero restrictions, higher prices and recent lockdowns due to a surge in COVID cases in many regions. Traders could re-access the forward global economic growth amid a slower China’s growth.
