Asia market morning update - cautious ahead of the Fed

US-China relations uncertainty

Wall Street concluded near neutral as early optimism leading into the Fed meeting were buffered by concerning reports on US-China trade. News that China had been wavering in commitment on issues such as intellectual property amid the lack of reassurances from the US dampened sentiment into Tuesday. While a pushback from either party does sound like it is part of any reasonable negotiation, the market appears to be pricing in nothing short of smooth discussions towards a resolution at present for US-China trade. This had invited markets to erase the positive start on Tuesday and shrug off President Donald Trump’s comment that ‘talks with China are going very well’.

As it is, one can see US indices little changed over the month of March. Volatility within markets appears to have also been set on low mode with the likes of the CBOE volatility index, VIX, oscillating 13.0 of late, after falling steadily from around the historical average of 20 from the start of the year. The wait-and-see mode within markets remains a prevalent occurrence and given the lack of directional updates across key issues concerning markets - ranging US-China trade, Brexit, growth trajectory – this may not be a surprise. Watch the Fed coming up for leads on monetary policy. As said, the broad expectations for dovishness could be punctured by the small chance that the Fed continues to see two or more hikes this year. The resultant impact on markets could see both equities and the greenback respond in kind.

Asia open

Against the backdrop of heightened concerns over US-China trade and ahead of the Fed meeting, Asia markets may well trade cautiously once again. Bank of Thailand meeting is expected alongside a couple of tier-2 data, but the broad sense is that regional markets will be attuned towards the Fed meeting. For the likes of the local Straits Times Index (STI), it does look like the consolidation may well continue between 3183 and 3278.