Asia open: The real drama lies in what happens after the Fed hits go

Markets

As Asia steps into the trading week, the stage is set for a tale of two markets: China’s economic doldrums clashing with Wall Street’s champagne-popping frenzy.

On one side, China is serving yet another platter of disappointing economic data, and investors are beginning to feel stuck in a rerun of missed expectations. Meanwhile, Wall Street is riding high, toasting one of its best weeks this year, powered by rising hopes that the Federal Reserve is about to drop the hammer with a 50-basis-point rate cut. It’s like watching two movies simultaneously—one a thriller, the other a slow-burn drama.

On Friday, U.S. stocks roared to life. The S&P 500 came within arm’s reach of its July all-time high, while the Nasdaq soared 6% for the week—its best performance since October. Even the MOVE index, Wall Street’s favourite gauge of Treasury market volatility, dipped to its lowest level since summer, giving traders a moment to exhale.

But the real test is how the day will unfold: Will Asia ride Wall Street’s momentum or get bogged down by China’s economic data hangover?

This week’s Federal Reserve decision will be the main event, with all eyes glued to the dot plot and Powell’s every word. Will the Fed kick off the rate-cutting cycle with a big swing or play it safe with a smaller move? Either way, the real drama lies in what happens after the Fed hits go.

Here’s the rub: Investors are trying to decipher whether the recent economic data suggests the economy is cooling down to a manageable pace or whether it’s the first signs of a deeper, darker slowdown. Stock traders are betting on a soft landing, while bond traders—eyeing 250 basis points of cuts—are bracing for a full-blown recession. Everyone’s looking to the Fed’s dot plot for clues, and the stakes couldn’t be higher. The market’s next moves could be a wild whipsaw between the two camps as they grapple for the upper hand.

Oil markets

Oil opened unsurprisingly lower as traders continued to absorb the economic tremors radiating from China; the once dependable engine of global crude demand is downshifting faster than expected. Weak economic data is compounding the situation, but here’s the kicker: the rapid rise of electric vehicles—now accounting for over half of new car sales—and the country’s ever-expanding high-speed rail network are slicing into gasoline and jet fuel consumption in ways few foresaw. The oil bulls are left scratching their heads as China’s energy appetite shrinks in a way that’s reshaping the entire market.

Forex markets

I've mapped out our currency trades post-FOMC and come to a clear conclusion: the yen is the only real play in town. With the Bank of Japan slowly but surely normalizing policy—tightening while almost every other central bank is on the rate-cutting path—the yen is poised for a significant rally. We're just at the beginning of a massive strengthening cycle for the yen, and the divergence between BoJ hawkishness and the dovish tilt elsewhere makes it a standout in the FX market. The time to ride this wave is now.