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Business Maverick

Asian stocks rise in calm before the Fed decision: markets wrap

Asian stocks rise in calm before the Fed decision: markets wrap
A crew member stands on the deck of the crude oil tanker 'Devon' as it sails through the Persian Gulf towards Kharq Island oil terminal to transport crude oil to export markets in the Persian Gulf, Iran, on Friday, March 23, 2018. (Photo: Ali Mohammadi/Bloomberg)

Asian shares rose and US equity futures were steady in calm trading ahead of the Federal Reserve’s much-anticipated interest-rate decision later on Wednesday.

Stocks climbed in China, Japan and Australia, along with contracts for the region-wide Euro Stoxx 50, as concerns over financial stability eased. Hong Kong’s Hang Seng Index advanced more than 2%, helped along by a sharp rise in Geely Automobile shares after it topped profit estimates.

Australian and New Zealand government bond yields moved higher while rates on Treasuries fell slightly. The decline for US yields came after a surge on Tuesday that added 19 basis points to the two-year yield and 10 basis points to the 10-year benchmark. 

Currency markets were subdued with an index of the dollar little changed.

The mix of rising stock prices and a broadly calm bond market indicated fresh appetite for risk taking as investors looked to signs of stability after the collapse of three US banks and UBS Group AG’s takeover of Credit Suisse Group AG.

Traders placed greater odds that the Fed will raise interest rates 25 basis points after market pricing was split between a hike and a pause earlier in the week. Officials at the central bank were set to issue updated rate projections for the first time since December, offering guidance on whether they still expect any additional hikes this year.

“The failures of banks that we’ve seen so far are idiosyncratic,” Yuting Shao, macro strategist for State Street Global Markets, said in an interview with Bloomberg Radio. She expects the Fed to increase interest rates by 25 basis points on Wednesday. “Once we look beyond the current volatility, restrictive policy staying for a bit longer is still warranted.”

Every stock in a measure of US financial heavyweights climbed on Tuesday. Shares in First Republic Bank fell 9% in after-hours trading after the stock surged almost 30% in its best day ever. The gain came amid optimism over a new plan under discussion to aid the regional lender. Further intervention to shore up the bank may include US government backing, people with knowledge of the situation said.

“This is an easier market backdrop,” said Nicholas Colas, co-founder of DataTrek Research. “Expectations of a dramatic about-face for monetary policy are diminishing.”

Still, many were unwilling to sound the all-clear on the financial stability concerns of the past weeks. Michael Wilson, Morgan Stanley’s chief US equity strategist, said the risk of a credit crunch is increasing materially. Bank of America’s latest global survey that polled fund managers between  10 to 16 March showed a systemic credit event has replaced stubborn inflation as the key risk to markets. 

Elsewhere in markets, Hong Kong’s monetary authority said a recent surge in the city’s interbank funding rates was spurred by demand for the local currency amid market volatility and quarter-end needs. The cash squeeze eased on Wednesday following Tuesday’s jump in the overnight cost to borrow, which was the biggest since Bloomberg started compiling the data in 2006.

West Texas Intermediate slid, trimming some of its gains from rallies on Monday and Tuesday. The energy sector led gains in Australian shares Wednesday, echoing the sector’s lead in the S&P 500 on Tuesday. BM/DM

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