Asian shares cautiously higher as investors await Fed policy update

BEIJING, Jan. 26 (BNA): Asian stock markets got off to a cautious start on Wednesday, after another volatile session on Wall Street, as investors braced for the outcome of the Federal Reserve’s meeting late in the day and any hints of a faster monetary tightening. Policy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.26% early Wednesday, but the index is down 2.4% this year, and is testing its lowest level in mid-December in one year.

Concerns that an expected interest rate hike by the Federal Reserve could hurt stock markets in Asia have pushed back the regional benchmark, although moves elsewhere have been more dramatic.

Globally, US stocks posted their worst week since 2020 last week, and the MSCI global index is on track for its biggest monthly drop since the COVID-19 pandemic hit the markets in March 2020.

Japan’s Nikkei lost 0.8% to hover around its lowest level since December 2020.

The Fed is set to update its policy plan later on Wednesday, potentially clarifying the timing of expected interest rate increases and trimming its massive balance sheet.

“Asian markets are currently affected by volatility in global markets, concerns about Fed tightening in the face of rising inflation and uncertainty over events in Russia and Ukraine,” Mansoor Mohieldin, chief economist at Bank of Singapore, told Reuters.

Rising tensions with the massing of Russian forces on the Ukrainian border have increased the risk-averse environment for investors.

“We expect that the Fed meeting, however, will not increase volatility. The central bank is scheduled to finish quantitative easing only in March, and while that suggests a possible rate hike in March as well, the Fed will endorse market expectations. In order to raise the fed funds rate by 25 basis points quarterly instead of the tighter tightening this year,” Mohieldin added.

Money markets were priced in for the Fed’s first rate hike in March, with three more quarter-point increases by the end of the year.

The Fed’s tightening is pressing some central banks in Asia to follow suit, potentially hurting stock markets as it did in 2013 when the US central bank began cutting back on its post-financial crisis stimulus.

“As long as the turmoil remains relatively contained in the stock markets, the barrier to turning the Fed into a pacifist is high,” analysts at Nomura said in a note.

They said they believe some of the Fed’s policy committee will interpret the recent sell-off in stocks as likely to remove some “foam” in the market, so it won’t change their view, especially amid concerns about rising inflation.

In early trading Wednesday morning, China’s blue-chip index rose 0.4%, while Hong Kong’s Hang Seng rose 0.6%.

Hao Hong, head of research at BOCOM International, expects investors to have limited appetite for big positions in Asia after the heavy selling in the market, as the Chinese New Year approaches.

US Treasuries were flat on Wednesday, with yields on two-year notes at 1.0273%, keeping the gains made earlier this month. The yield on the benchmark 10-year Treasury was 1.7814%, just below a two-year high of 1.9% hit last week.

S&P 500 futures were down 0.13% and Nasdaq futures were flat.

In the previous trading day, the Dow Jones Industrial Average fell 0.19%, the S&P 500 lost 1.22% and the Nasdaq Composite fell 2.28%.

The dollar index against a basket of major currencies remained mostly unchanged, although the US dollar lost some ground against the safe-haven yen, which has benefited from a flight to safety in recent months, and the Australian dollar.

US crude fell 0.4 percent on Wednesday to $85.26 a barrel, and Brent crude fell 0.16 percent to $88.04 a barrel.

Spot gold rose 0.1% to $1,848.41 an ounce, after hitting a two-month high overnight as investors sought safety.

HF