Asian stocks slip with US CPI, Fed in focus
Equities slipped in Japan and Australia, while those in South Korea climbed. Contracts signaled early losses for stocks in Hong Kong even after the S&P 500 closed at a new high. Chinese stocks are in focus after the CSI 300 Index of mainland shares closed at its lowest in more than six weeks on Tuesday.
Asian stocks shrugged off a positive US session and opened lower as a double-whammy of US inflation data and the Federal Reserve decision landing later in the day kept traders on edge.
Equities slipped in Japan and Australia, while those in South Korea climbed. Contracts signaled early losses for stocks in Hong Kong even after the S&P 500 closed at a new high. Chinese stocks are in focus after the CSI 300 Index of mainland shares closed at its lowest in more than six weeks on Tuesday.
Treasuries steadied after climbing on a solid $39 billion sale, which reflected speculation that Wednesday’s inflation reading will help make the case for the Fed to cut rates this year. Demand in an auction of 10-year debt was strong, with the bid-to-cover ratio of 2.67 being the highest since February 2022 — the month before the start of the tightening cycle. Australian bonds nudged higher early Wednesday.
“Asian equity markets are set for a cautious start to trading today ahead of a busy 48-hour jam-packed with event risk in Asia and the US,” said Tony Sycamore, market analyst at IG Australia in Sydney. “Getting the ball rolling, a CPI and PPI update in China this morning — with the market seeking more evidence that China’s deflationary spiral has been broken.”
China’s May price data, due soon, is likely to show another month with only a faint inflation pulse, according to Bloomberg Economics. Meanwhile, the Biden administration is said to be considering further restrictions on China’s access to chip technology used for artificial intelligence.
Even with India’s post-election volatility, central banks in Japan and Taiwan gearing up for their own rate decisions and various Southeast Asian currencies testing key support levels, there’s no avoiding the fact that US monetary policy is the single most critical input for traders around the world.
“63% of investors believe that the Fed will first cut because of a soft landing and that inflation is on a Fed-friendly path toward sub-3%, so there will be a cut because policy doesn’t need to be as restrictive,” said Dennis DeBusschere at 22V.
With the Fed widely expected to hold borrowing costs at a two-decade high on Wednesday, there’s less certainty on officials’ quarterly rate projections, known as the “dot plot.”
“We expect Fed Chair Powell and company to maintain a position that stresses potential rate cuts remain contingent on the committee seeing further progress made on bringing down price pressures,” said Anthony Saglimbene at Ameriprise.
Sentiment and positioning indicators signal a possible short-term pullback in stock markets, driven by uncertainty around the outlook for interest rates, according to HSBC strategists — who recommend buying any dips.
“We’d expect any weakness in risk assets to be both short-lived and shallow, and we think this presents a pretty good tactical (re-)entry point,” the team including Duncan Toms and Max Kettner noted.
In commodities, oil extended gains after industry data pointed to shrinking US crude stockpiles ahead of a report from the IEA on the market outlook.
Also Read: Trade Setup for June 12: Exhausted Nifty poised for a bout of profit booking?
Equities slipped in Japan and Australia, while those in South Korea climbed. Contracts signaled early losses for stocks in Hong Kong even after the S&P 500 closed at a new high. Chinese stocks are in focus after the CSI 300 Index of mainland shares closed at its lowest in more than six weeks on Tuesday.
Treasuries steadied after climbing on a solid $39 billion sale, which reflected speculation that Wednesday’s inflation reading will help make the case for the Fed to cut rates this year. Demand in an auction of 10-year debt was strong, with the bid-to-cover ratio of 2.67 being the highest since February 2022 — the month before the start of the tightening cycle. Australian bonds nudged higher early Wednesday.
“Asian equity markets are set for a cautious start to trading today ahead of a busy 48-hour jam-packed with event risk in Asia and the US,” said Tony Sycamore, market analyst at IG Australia in Sydney. “Getting the ball rolling, a CPI and PPI update in China this morning — with the market seeking more evidence that China’s deflationary spiral has been broken.”
China’s May price data, due soon, is likely to show another month with only a faint inflation pulse, according to Bloomberg Economics. Meanwhile, the Biden administration is said to be considering further restrictions on China’s access to chip technology used for artificial intelligence.
Even with India’s post-election volatility, central banks in Japan and Taiwan gearing up for their own rate decisions and various Southeast Asian currencies testing key support levels, there’s no avoiding the fact that US monetary policy is the single most critical input for traders around the world.
A survey conducted by 22V Research showed most investors polled are betting both the consumer price index and the Fed decision will be “risk on.”
“63% of investors believe that the Fed will first cut because of a soft landing and that inflation is on a Fed-friendly path toward sub-3%, so there will be a cut because policy doesn’t need to be as restrictive,” said Dennis DeBusschere at 22V.
With the Fed widely expected to hold borrowing costs at a two-decade high on Wednesday, there’s less certainty on officials’ quarterly rate projections, known as the “dot plot.”
“We expect Fed Chair Powell and company to maintain a position that stresses potential rate cuts remain contingent on the committee seeing further progress made on bringing down price pressures,” said Anthony Saglimbene at Ameriprise.
Sentiment and positioning indicators signal a possible short-term pullback in stock markets, driven by uncertainty around the outlook for interest rates, according to HSBC strategists — who recommend buying any dips.
“We’d expect any weakness in risk assets to be both short-lived and shallow, and we think this presents a pretty good tactical (re-)entry point,” the team including Duncan Toms and Max Kettner noted.
In commodities, oil extended gains after industry data pointed to shrinking US crude stockpiles ahead of a report from the IEA on the market outlook.
Also Read: Trade Setup for June 12: Exhausted Nifty poised for a bout of profit booking?
(Edited by : SonalMohan Jadhav)
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