Asian markets could keep trading on a defensive mood as global equities closed on the backfoot as global growth and COVID worries lingered, while the forthcoming risk events, including today’s US Consumer Price Index data, added to the cautious mood. Traders are positioning for the US earnings season that kicks off on Thursday, with financials and banks the early focus.
In China, new lockdowns are causing ripples in risk assets, especially in the energy sector with Oil pressure as renewed COVID spikes in Shanghai weighed on the demand outlook. Participants are awaiting the US CPI, followed by retail sales on Friday. The releases will help participants gauge how much further Fed policy has to tighten in the coming quarters. A strong Consumer Price Index and Producer Price Index tomorrow would keep marketing pricing at 75bps again this month before slowing the tightening pricing pace. A hawkish reaction could be seen, but with a limited effect on Fed’s repricing as the US curve was less volatile than a few months ago. Still, if the reading shows further inflationary pressure, markets could bring another wave of risk-off flows due to potential pressure on the Fed’s terminal rate, which currently sits around 3.25 to 3.75%.
