DATA VACUUM

Local markets have been in a China New Year holiday data vacuum

Local markets have been in a China New Year holiday data vacuum, but tomorrow brings us our first post-LNY PMI data update that should help local sentiment. And next month's NPC meeting could be a game-changer if policy support triggers a significant rebound in the property sector.

The dollar continues to price a sizeable FED risk premium, suggesting that all that is needed is for the market to price a peak in Fed Funds for the dollar to grind lower again.

ASIA FX is getting held back as the market assesses the likely hood of China's provision of military aid to Russia. If this happens, the market would likely start pricing higher sanctions risk on Chinese assets and the exchange rate. It is not the precise growth impact of sanctions that we worry about but the broader risk premium that the market could attach to the Western-China relationship.

The following two weeks loom critical for market participants. Events are predominantly US-centric: a reaffirmation of a preferred Fed hiking pace of 25bps, some mean-reversion in the February employment data & CPI prints, and avoidance of exacerbating tensions in the US-China relationship would give investors confidence to move back out along the risk curve while at the same time correcting the US dollar lower and green lighting global risk sentiment again.

But if US data remain strong and inflation remains high, forcing the market to continue debating 6%+ Fed Funds, turn out the lights; the party is over.