Asia morning update: Look ahead to Fed FOMC minutes

Asian markets, which had thrived in mixed performance on Tuesday, may see a second day of disparate gains in the absence of prominent drivers.

Tuesday’s US markets saw a trend we have not seen in several sessions and that had been the simultaneous uptick of both US indices and currency. Approximately 0.2% of gains were seen on the S&P 500 and Dow Jones indices and a rough 0.5% increment clocked for the USD index. Gains had been led by the financial sector in both abovementioned indices.

While the surprise of US Market services purchasing managers’ index (PMI) at a four-month high likely contributed to the gains for the US dollar, the upcoming Federal Open Market Committee (FOMC) May meeting minutes could be the key event charting the course for prices. A slight reversal of US April new home sales from the over 9-year high in March had largely been shrugged off by market participants. For the wider market, the look ahead to the Fed’s next course of action is likely to have given direct beneficiaries, financial stocks and the US dollar, some relief from recent market pressures.

Asian markets could waver once again in the absence of prominent drivers. Supporting prices for regional bourses is likely to be the sustained rally for crude oil prices. WTI futures was last seen briefly attempting a break of the horizontal resistance at $51.80 per barrel (bbl). Besides the broad rally in anticipation of 25 May’s OPEC meeting decision, US private API report showed a drawdown in crude inventories. Although the reduction had missed expectations at 1.5 million barrels, the sizeable gasoline inventory draw at 3.15 million barrels backs higher energy prices.

Early movers in the region saw moderate gains, led by the Nikkei 225 at 0.6% (as of 8:30am Singapore time), obviously benefitting from the USD/JPY move. Opening calls for Hong Kong and Singapore markets sees diverging moves. The latest breaking news on China’s downgrade by Moody’s could, however, deal a blow to confidence in regional markets. While the downgrade itself had not been regarded as a plunging drop in rating, the attention on China’s worsening outlook could create jitters. Key trading partner, Australia, has thus far seen AUD/USD prices knocked down a notch to $0.7460 levels.

For the day ahead, Japan's March leading index and Bank of Thailand's monetary policy decision are due. US existing home sales will also be a point of interest in addition to comments by Fed's Kaplan and Fed's Kashkari. The main focal point would be on the FOMC May meeting minutes.

Yesterday: S&P 500 +0.18%; DJIA +0.21%; DAX +0.31%; FTSE -0.15%