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Asian equities climb ahead of Fed meeting, yen falls: markets wrap

Asian equities climb ahead of Fed meeting, yen falls: markets wrap
A sailing boat with Louis Vuitton branded sails floats past during the unveiling of the Louis Vuitton pre-fall 2024 men's collection at the Avenue of Stars promenade in Hong Kong, Hong Kong, on Thursday, 30 November 2023. (Photo: Lam Yik/Bloomberg via Getty Images)

Stocks in Asia drifted higher after US equities touched fresh peaks ahead of the Federal Reserve’s monetary policy decision, with eyes on the future pace of rate cuts. The yen extended its decline. 

Equities advanced in Australia and South Korea while Chinese benchmarks fluctuated as banks kept their benchmark lending rates unchanged. Japanese markets are closed for a holiday. 

European futures fell alongside US contracts, paring Tuesday gains on Wall Street when the “Magnificent Seven” cohort of tech megacaps staged a rebound. Nvidia Corp.’s new chips helped support the rally, while in Asia, reports that the company was looking to buy Samsung Electronics Co.’s memory chips sent the South Korean giant’s shares higher.

Traders have stepped up short Treasury bets ahead of the Fed’s decision due later on Wednesday, when the central bank is expected to hold rates steady for a fifth consecutive meeting. Asia trading in Treasuries is closed Wednesday given the holiday in Japan.   

The Bloomberg dollar index steadied following a four-session advance. The yen fell against the euro and the dollar on speculation the Bank of Japan will keep its monetary policy accommodative even after it ended the world’s last negative-interest-rate policy on Tuesday. 

The summary of the Fed’s economic projections will reveal whether still-robust data are giving officials cause to dial back intentions to cut rates — or if their outlook for three reductions this year remains on track despite inflation remaining above the Fed’s 2% target. 

“You don’t necessarily have to wait to get to 2% before you can start removing some of the restrictive policy,” said Michael Buchanan, deputy chief investment officer for Western Asset Management Company LLC, who anticipates three cuts in 2024. “We think the first cut will be in June,” Buchanan said.

Hawkish commentary from the Fed will add further support to the recent rise in yields and the dollar, according to Win Thin and Elias Haddad at Brown Brothers Harriman. “If Jerome Powell can stick to the hawkish script, the message will remain consistent and market reaction will likely be limited. If he veers from the script and delivers a dovish tilt, then market reaction will likely be quite violent.”

In addition to hints about upcoming policy moves, the Fed will also begin in-depth discussions about its balance sheet this week, including when and how to slow the pace at which the central bank drains excess cash from the financial system.

Back in Asia, China’s property-debt crisis has entered a new stage, as tensions have increasingly shifted to developers’ court battles with creditors over debt restructuring plans. There is “no quick fix” for China’s housing woes and global investors need to see a resolution before they deploy capital in the sector again, according to Kei Chua, a partner of Bain Capital, speaking at Bloomberg’s China Credit Forum in Hong Kong. 

Separately, Hong Kong fast-tracked domestic security legislation, prompting fresh warnings from the US, European Union and UK about open discussion in the global finance hub.

Elsewhere, export data in Taiwan and a monetary policy decision in Indonesia are due. Oil steadied after a two-day gain as an industry group flagged a fall in US crude stockpiles, while gold traded in a narrow band ahead of the Fed. Bitcoin fell against the dollar for a third session in a further retreat from its recent highs and traded below $63,000.


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