Stocks declined in Asia after Wall Street posted modest losses ahead of the Federal Reserve’s policy decision, with traders betting interest rates will be higher for longer to curb inflation.
(Bloomberg) — Stocks declined in Asia after Wall Street posted modest losses ahead of the Federal Reserve’s policy decision, with traders betting interest rates will be higher for longer to curb inflation.
Benchmark indexes traded lower at the open in Japan and Australia. Futures for equities in Hong Kong slipped and contracts for US stocks were flat in Asia trading Wednesday after the S&P 500 closed down though off session lows.
In a sign of further headwinds facing Asian markets, US-listed Chinese stocks fell the most in nearly two weeks on Tuesday. Brent remained firm above $94 per barrel, posing inflation concerns.
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.
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.”
In Asia, China’s commercial banks are likely to lower prime rates on short-term loans for a second month in a row, while holding five-year rates steady, according to Eric Zhu at Bloomberg Economics. On the five-year benchmark, “other moves to support the housing market, including a recent expansion of first-home buyer benefits, make cutting the home loan benchmark less urgent,” Zhu wrote in a note.
Corporate Highlights
- Instacart racked up a 12% trading-debut gain in one of the year’s biggest initial public offerings
- Klaviyo Inc. priced shares in its IPO above the marketed range, Bloomberg reported.
- Walt Disney Co. slid on plans to nearly double its theme-park spending to $60 billion over the next 10 years
- Amazon.com Inc. says it will hire 250,000 employees this holiday shopping season and boost average pay for logistics personnel to about $20.50 an hour as it seeks to recruit and retain workers amid a labor shortage
- Starbucks Corp. slipped as TD Cowen downgraded it to market perform, flagging “worrisome” pressures that could challenge same-store sales in China
Key events this week:
- China loan prime rates, Wednesday
- 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 9:22 a.m. Tokyo time. The S&P 500 fell 0.2%
- Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.2%
- Hang Seng futures fell 0.1%
- Japan’s Topix fell 0.2%
- Australia’s S&P/ASX 200 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 $1.0681
- The Japanese yen was little changed at 147.78 per dollar
- The offshore yuan was little changed at 7.3050 per dollar
- The Australian dollar rose 0.1% to $0.6461
Cryptocurrencies
- Bitcoin was little changed at $27,216
- Ether was little changed at $1,642.18
Bonds
- The yield on 10-year Treasuries was little changed at 4.36%
- Australia’s 10-year yield advanced six basis points to 4.23%
Commodities
- West Texas Intermediate crude rose 0.4% to $91.53 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland.
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