Asia stocks benchmark clings to gain before Fed: markets wrap

Shares in Japan, South Korea and Australia held advances of less than 1% while those in Hong Kong and mainland China fluctuated. 

US equity futures rose about 0.2% in Asia after the S&P 500 closed off its intraday peak on Tuesday. Investors are awaiting more clues on the Fed’s interest-rate path from the decision later on Wednesday and chair Jerome Powell’s briefing.

The dollar clawed back some of the ground it lost to its G10 counterparts on Tuesday while emerging-market currencies strengthened versus the greenback. The New Zealand dollar fell in a decline that accelerated after the government warned a recession was likely next year.

Treasuries were little changed after rallying on Tuesday, when data showed Powell’s key measure of services prices excluding energy and rents moderated again in November. While price pressures appear to have peaked, headline CPI remains above 7%, suggesting the Fed has more work to do to rein in inflation. 

Australian bonds rose, led by the rate-sensitive three-year maturity.

“The market is now anticipating a slower pace of hikes and a moderation of the peak terminal rate in the US,” said Kellie Wood, deputy head of fixed-income at Schroders in Sydney. “We believe the market is fully priced for this interest rate cycle given the level of inflation in the US economy.”

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%. 

Elsewhere in markets, oil fell slightly ahead of the Fed decision and after rallying 6% over the previous two sessions. Gold steadied near its highest level since July.

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.