(Bloomberg) — Asian stocks are set to open in the green Wednesday after US markets capped gains in a volatile session ahead of the Federal Reserve’s policy decision.
Equity futures for Australia and Japan posted modest gains while contracts for Hong Kong slipped. Stocks in the US ended off session highs as investors weighed whether soft inflation readings Tuesday would alter the Fed’s path forward. A gauge of dollar strength fell to the lowest since June.
Australian bonds edged higher in early trading Wednesday, with the 10-year yield slipping one basis point to 3.39%. In the US Tuesday, Treasuries rallied after Fed Chair Jerome Powell’s key measure of services prices excluding energy and rents moderated again in November. While that’s the latest sign that price pressures have peaked, the headline CPI index figure remains above 7%, indicating the Fed has more work to do rein in inflation.
“We should expect some opening strength across Asian indices, helped by a much weaker US dollar,” said Chamath De Silva, a senior portfolio manager for Sydney-based BetaShares Holdings. “Digging a bit deeper, factor performance in the US overnight showed outperformance among growth relatively to value, consistent with the sharp drop in US yields, which should also carry across to Asian markets. But we shouldn’t expect large gains, given much of the post-CPI rally was unwound.”
With policy makers widely expected to downshift to a 50-basis point hike Wednesday, Powell will likely indicate rates still need to stay restrictive well into next year to further cool prices.
A dovish repricing swept across rates markets on Tuesday. With a half-percentage point move by the Fed notched in, wagers leaned toward a quarter-point increase as early as February. Further out, swaps priced the peak Fed policy rate around 4.85% by May, down from almost 5% ahead of Tuesday’s inflation print. The current Fed policy range is 3.75% to 4%.
Following the Fed, the European Central Bank will announce its rate decision Thursday. Markets will also contend with decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.
Key events this week:
- FOMC rate decision and Fed Chair news conference, Wednesday
- China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
- ECB rate decision and ECB President Lagarde briefing, Thursday
- Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
- US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- Eurozone S&P Global PMI, CPI, Friday
Some of the main moves in markets as of 7:44 a.m. Tokyo time:
- The S&P 500 rose 0.7%
- The Nasdaq 100 rose 1.1%
- Nikkei 225 futures rose 0.3
- Australia’s S&P/ASX 200 Index futures rose 0.3%
- Hang Seng Index futures fell 0.1%
- The euro was little changed at $1.0631
- The yen was little changed at 135.52 per dollar
- The offshore yuan was little changed at 6.9633 per dollar
- Bitcoin fell 0.2% to $17,723.87
- Ether fell 0.2% to $1,317.05
- The yield on 10-year Treasuries declined 11 basis points to 3.50%
- Australia’s 10-year yield declined one basis point to 3.39%
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
—With assistance from Georgina Mckay.
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