SYDNEY: Asian stocks jumped on Wednesday, led by Chinese stocks as hopes reopened, while the dollar slipped as investors prepared for the US Federal Reserve’s decision later in the day, with many hoping for signs of a slowdown in future interest rate hikes.
European markets seemed poised to extend the cautious optimism, with Eurozone Stoxx 50 futures up 0.5%. US S&P 500 futures rose 0.3% while Nasdaq futures rose 0.4%.
The world’s largest central bank is set to release its policy statement at 2 p.m. ET (1800 GMT) on Wednesday, as investors prepare to closely scrutinize the statement and comments from Federal Reserve Chairman Jerome Powell for any indication that policymakers are Politics are thinking of raising interest rates.
Markets are widely expecting the Fed to raise the benchmark interest rate by 75 basis points to a range of 3.75% to 4.00%, the fourth increase in a row.
However, traders are divided over the magnitude of the December rally, with a 44.5% probability of futures prices rising 50 basis points, according to the CME Fed’s instrument.
said Kevin Cummins, chief US economist at NatWest Markets.
“Given that the inflation data has not yet shown any signs of moderation, we are leaning a bit more toward officials who shy away from suggesting they are downplaying the rises so far.”
Cummins expects the Fed to step down to 50 basis points in December.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8% after fluctuating earlier in the day, as Chinese and Hong Kong stocks reversed losses on hopes that China will ease its strict COVID-free restrictions.
An unverified note circulating on social media on Tuesday that China plans to reopen after severe restrictions on the spread of the coronavirus in March led to a sharp rebound after last month’s brutal sell-off. But quarantines and business turmoil in China are on the rise again and some analysts expect no major policy changes until next year or even 2024.
Hong Kong will hold an investment summit on Wednesday to rebuild the city’s image wracked by the coronavirus as the region’s financial hub, with Chief Executive John Lee vowing to continue working towards lifting Covid restrictions.
Chinese policymakers also affirmed their support for Hong Kong and welcomed foreign investors into the city. The Hang Seng Index is up 2.5%, after a whopping 5.2% rise in the previous session.
Japan’s Nikkei lost 0.1%.
An overnight survey showed that job opportunities in the United States rose unexpectedly in September, indicating that demand for labor remains strong despite the interest rate hike. That led to a reversal in Treasury yields and raised market bets on interest rates to more than 5% next year.
US stocks closed lower, with the Dow Jones Industrial Average down 0.24%, the S&P 500 Index down 0.41% and the Nasdaq Composite down 0.89%.
In the currency market, the dollar fell 0.2% against a basket of major currencies. It fell 0.5% against the Japanese yen to 147.6 yen on concerns about authorities’ intervention and poor liquidity.
Bank of Japan Governor Haruhiko Kuroda said on Wednesday that adjusting the central bank’s yield curve control policy, which has contributed to the weak yen, could become an option in the future.
The safe-haven US currency gave up some quick gains this year in October on speculation that the Federal Reserve may signal a slowdown in its violent tightening campaign.
The dollar’s decline in foreign exchange markets is temporary, according to a Reuters poll of currency strategists, who said that the dollar still had enough strength to regain or surpass its recent gains and resume its continued rally.
“From the Fed’s point of view, putting the US into a recession is still less sinister than not addressing entrenched price pressures,” said Chris Weston, head of research at Pepperstone.
“My view is that the risks are off the hawkish reaction – the US dollar is higher, but I will recognize that price moves indicate that the market is well positioned towards this outcome.”
US Treasury yields were largely flat on Wednesday after reversing much of the losses overnight on the back of unexpected strength in jobs data.
The benchmark 10-year note yield was little changed at 4.0422% while the 2-year note yield was down 4 basis points to 4.5157%.
In commodities, oil rose after industry data showed a surprise drop in US crude inventories, indicating continued demand.
US crude oil futures rose 1.4% to $89.65 a barrel, while Brent crude futures rose 1.2% to $95.82.
Gold was slightly higher, with the spot trading at $1,649.72 an ounce. – Reuters