Asian stocks mixed with focus on Fed, China Covid: markets wrap

Equities fell in Australia, reversed course to rise in Japan and fluctuated in mainland China and Hong Kong. US futures made small gains following S&P 500’s third day of declines. 

Treasury yields were little changed in Asian trading after surging on Monday as the services reading bolstered the case for the Federal Reserve to deliver higher interest rates. The dollar steadied. 

Australian bond yields were mixed ahead of a central bank decision later on Tuesday. The Reserve Bank of Australia is forecast to raise its key rate by 25 basis points, half the size of the move expected later this month from the Fed.

The Australian dollar rose to take back some of its overnight losses. The yen fluctuated and the offshore yuan remained below 7 to the greenback.

Swaps showed an increase in expectations for where the Fed terminal rate will be, with the market indicating a peak above 5% in the middle of 2023. The current benchmark sits in a range between 3.75% and 4%. 

Morgan Stanley’s Michael Wilson, one of the US stock market’s most-vocal sceptics, says investors are better off booking profits. “We are now sellers again,” the strategist and his colleagues wrote.

Still, Ben Emons, senior portfolio manager at Newedge Wealth, said the Fed will be “going on the track now with slower hikes”.

“That will be really communicated, I think, in the December press conference,” he said on Bloomberg Television. 

Meanwhile, Beijing announced it will scrap Covid testing requirements for most public venues in what is seen as an accelerated move toward the exit of Covid-Zero policy. But the possibility of new tariffs on Chinese steel and aluminium by the US and European Union may weigh on sentiment.

Oil was up for the first time in three days on optimism that China’s reopening will buoy demand. Gold climbed. BM/DM