Stocks in Asia were on the backfoot as traders awaited the Federal Reserve’s next policy decision, with interest rates expected to be higher for longer to curb inflation.
An Asian equity gauge slipped for a third day, with all sectors trading in negative territory. Contracts for US stocks were flat in Asia Wednesday after the S&P 500 closed down though off session lows.
Stocks in Hong Kong and mainland China declined, with finance shares edging lower. Chinese lenders earlier kept the one- and five-year loan prime rates — the latter being a reference for mortgages — unchanged, following the central bank’s move last week to hold policy rates steady as officials assess the economic impact of existing stimulus.
“Equity market investors are looking for for more policy supports, more impactful policy supports and more sustained policy supports in terms of the shorter term,” John Lin, chief investment officer of China equities at AllianceBernstein, said on Bloomberg Television. “We might very well be at the bottom, but the bottom might last for a while.”
Meanwhile, oil fell as wider markets held a cautious tone ahead of the Fed’s meeting. Still, with crude near a 10-month high, global central banks’ fight against inflation becomes more complicated.
Australian and New Zealand bond yields ticked higher, mirroring the moves in both the five- and 10-year Treasury yields which hit the highest levels since 2007 on Tuesday. Treasuries steadied during Asian trading, as did the dollar.
The yen rose from its near 10-month low after US Treasury Secretary Janet Yellen said any intervention by Japan to support its currency would be understandable if it were aimed to smooth out volatility. Trade data that showed Japan’s deficit widened in August yielded little response.
The offshore yuan steadied as the People’s Bank of China reiterated its commitment to crack down on behaviors that disrupt the FX market.
May Hold
Fed Chair Jerome Powell and his colleagues are widely expected to hold rates Wednesday. Still, supply shocks such as climbing oil prices present the central bank with a quandary as they simultaneously boost inflation and curb economic growth. Surging energy costs played a role in tipping the US into recession in the mid-1970s, as well as the early 1980s and 1990s.
Aside from expectations of a hawkish hold, investors will focus on the Fed’s updated quarterly rate projections — known as the dot plot — that will be released at the conclusion of the policy meeting. High on the watchlist will be whether these forecasts continue to reveal a median view for one more quarter-point hike this year and whether forecasts for 2024 scale back the 100 basis points of rate reductions that officials foresaw in June.
“Going into 2024 to really get inflation back to that 2% target, the Fed is at least going to have to hold for an extended period of time rather than cut,” Kathryn Rooney Vera, chief market strategist at StoneX, said on Bloomberg Television. “The dollar probably has a bit more upside.”
Elsewhere, gold held steady.
Key events this week:
- UK CPI, Wednesday
- Federal Reserve policy meeting followed by Fed Chair Jerome Powell’s news conference, Wednesday
- Bank of Canada issues summary of its September policy meeting, Wednesday
- Eurozone consumer confidence, Thursday
- Bank of England policy meeting, Thursday
- US leading index, initial jobless claims, existing home sales, Thursday
- China’s Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 11:50 a.m. Tokyo time. The S&P 500 fell 0.2%
- Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 0.2%
- Japan’s Topix fell 0.7%
- Australia’s S&P/ASX 200 fell 0.5%
- Hong Kong’s Hang Seng fell 0.4%
- The Shanghai Composite fell 0.4%
- Euro Stoxx 50 futures were little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0685
- The Japanese yen was little changed at 147.82 per dollar
- The offshore yuan was little changed at 7.3025 per dollar
- The Australian dollar was little changed at $0.6452
Cryptocurrencies
- Bitcoin was little changed at $27,205.1
- Ether was little changed at $1,642.04
Bonds
- The yield on 10-year Treasuries was little changed at 4.36%
- Japan’s 10-year yield was little changed at 0.720%
- Australia’s 10-year yield advanced five basis points to 4.22%
Commodities
- West Texas Intermediate crude fell 0.7% to $90.58 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Stephen Kirkland.
