Asian stocks advanced as technology shares led a rebound in China’s equity market ahead of a much-anticipated policy decision by the US Federal Reserve. MSCI Asia Pacific Index jumped as much as 1.4%, set for its biggest gain in almost a week, as dip buyers helped lift China’s gauges from multi-year lows.
China reopening chatter is quite broad and highly encouraging, although looking at price action, traders are discounting a full snap reopening. The consensus among the street has been that any change before year-end would become apparent in the first couple of weeks following the party congress.
Ahead of speculation today, the overwhelming consensus for a reopening was Q2 2023 (unclear whether that has moved materially). But if we get a political nod to ease out of Covid -zero in Q1 2023, that would be sufficiently positive to drive a substantial global “risk- on” move.
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The FOMC meeting could be decisive since the markets have revolved around a FED pivot the last couple of weeks. So, the million-dollar question for FX traders is, will the Fed push back on market pricing? Or will they acknowledge and potentially sign a slowing in hikes? With all the pivot noise, it feels like a make-or-break situation for the USD and critical for the Greenback’s path going into year-end.
But at the end of the day, with a tight labour market and CPI still hot, why would the Fed pivot?
Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT