Asian equities could trade sideways with a negative tilt after continuous risk-off flows hit global markets. The major theme is the European energy crisis, with prices of Gas/Power hitting fresh highs. With the risk aversion in the region, the US dollar went bid amid a harder growth outlook in Europe, seeing the Euro selling off to fresh since-2002 lows. Furthermore, it is worth keeping a close eye on US Treasury yields.
Higher US yields can affect capital flows to risk assets in Asia, and the tech sector outperforms due to duration sensitivity. The price action on rates markets could drive the trade. Today, participants could see extra volatility in Fed monetary pricing amid August Flash PMIs, giving traders a proxy for upcoming growth and inflation data. On the macro front, after cutting key rates, the PBoC stated major financial institutions need to maintain stable growth of total loans, and it is to protect reasonable financing needs in the real estate sector. PBoC added it is to step up financial support for the key platform economy and will expand support for infrastructure construction. China’s policy easing could give mild support for sensitive sectors such as construction due to liquidity support, lower yields and better credit spreads, and more easing could be expected in the coming months amid slow activity data.
