Global risk sentiments likely to stabilize, improve gradually with lower 10-year UST yield in upcoming sessions: Scotiabank

Global risk sentiments are expected to stabilize and improve gradually with a lower 10-year United States Treasury (UST) yield in the coming sessions, which would then bring a temporary relief to EM Asian currencies, according to the latest research report from Scotiabank.

Another deep selloff in US stock markets bull-steepened the 2-10-year UST yield overnight and dented global risk sentiment that will weigh on EM Asian currencies. The DXY Index should have weakened amid a drop in the 10-year UST yield, but remains elevated on weak German and Eurozone October PMI released Wednesday.

Further Fed rate hikes to manage inflation expectations could bear-flatten the 2-10Y UST yield curve again, sparking a steep US stock sell-off repeatedly and intensifying global risk aversion once again. It will likely affect the Fed’s tightening path, although Atlanta Fed President Raphael Bostic said on Tuesday that he doesn’t "have any kind of threshold number in the equity markets for making an assessment about whether we are in a different place" in terms of the economic outlook.

"We believe the Fed will continue raising its benchmark interest rate gradually in order to reduce the risk of a sustained overshooting of its 2 percent inflation target. However, the market is pricing in fewer rate hikes in the next 12 months," the report added.