Asian markets could trade with a strong risk-off tone after heavy losses across all global equities, especially in the US, with the long-duration/tech sector as Nasdaq closing down -by 5%, suffering its biggest decline since June 2020. Traders are watching the bond-equity correlation closely as US yields are climbing, with the US 10-Year Treasury Note trading above the 3% mark. It helped push equities down yesterday during the EU and US cash session.
The USD is also a lead indicator in this phase of the cycle. It strengthened amid the sell-off on global stocks and higher US yields across the entire curve, with the forward market bringing back some risk premia of a 75-bps hike in the June and July meeting. It could show that the market is still considering that scenario even though Fed Chair Powell said that the Committee was not considering 75 bps. So price action shows that a more hawkish, even a potential emergency meeting is not completely off the table. Next, Nonfarm Payroll and US Consumer Price Index data could bring that hawkish scenario back to the FOMC table.
For the session ahead, Japanese markets reopen from the holidays, while US Nonfarm Payroll data could be a major event after a strong price action during and after this week’s FOMC. The market consensus anticipates 391k nonfarm payrolls to be added in April, with the pace easing from recent averages. Traders could focus on the average hourly earnings metrics given that the Fed is more attentive to the inflation part of its mandate. Also, it is worth noting that some data points–like the Employment Costs Index–continue to allude to strongly rising wages as consumer prices continue to increase. With a market heavily tilted to the downside this week, if the NFP shows a strong miss, markets could bid for global equities and risky assets. Also, trade a pullback on rates and USD, especially EUR, JPY and EMFX. A beat in the data could bring back the 75 bps hikes with a potential pushback from Fed speakers in the coming days from the 50-bps path. Focus then could shift to the US CPI next week to see if data would bring an emergency meeting or new guidance on rates before the June FOMC meeting.
