Asia market morning update - monetary policy reassurances

Accelerating inflation, dovish Fed

Wall street had mixed leads in store overnight whereby caution over accelerating inflation had been met with Fed reassurances through their March Federal Open Market Committee (FOMC) meeting minutes. Headline CPI arrived above the market consensus at 0.4% month-on-month, though seeing core CPI missing estimates at 0.1%. The diverging trend had been a mix of rising fuel prices contributing to the headline reading while the core CPI missed on specific items such as apparel. Notably, the pickup in the headline figure had perhaps not been a huge surprise for the market given the lift in oil prices since the start of the year.

Meanwhile on the Fed minutes, the dovishness had been reflected as expected, reassuring the view of no further rate hike in 2019 that had likewise lifted the expectation for a rate cut by December to 57.0% from 48.8%, a day earlier according to the CME FedWatch tool. While the minutes reiterated that the rates ‘could shift in either direction based on incoming data and other development’, there had been no specific mention from members in suggesting the explicit likelihood of a cut, one that the market had been hunting for. Still, the Fed minutes alongside with the earlier dovish ECB serve to reinforce the support from central banks to markets that would likely lay to rest concerns on the monetary policy end.

US-China enforcement offices

As US and China resumes talks via teleconference this week, it remains one item for markets to monitor. Treasury secretary Steven Mnuchin commented on Wednesday that an enforcement mechanism had been ‘pretty much agreed’ alongside the establishment of enforcement offices which ought to be good news for markets. This is against the backdrop of the issue of enforcement being viewed as a cumbersome one. The effect to risk sentiment had, however, been mostly capped with the overarching monetary policy theme guiding greenback moves overnight. That said, this is once again a positive sign post building towards the announcement of a deal signing for markets to await.

Asia open

A mixed start is eyed for Asia markets this Tuesday, as told with the mixed leads of accelerating US CPI and dovish FOMC minutes in store. Early movers in the region including the ASX 200 and the Nikkei 225 can be both found in red, though the latter had since pared some losses with the Brexit extension announcement to end-October jostling USD/JPY (大口） higher. More updates on Brexit watched, but in the meantime, it will be China’s PPI data to follow in the day to confirm further signs of stabilization that could help Asia markets.

Yesterday: S&P 500 +0.35%; DJIA +0.03%; DAX +0.47%; FTSE -0.05%