Asian stocks edge higher ahead of Fed policy decision

by Jonathan Adams
Asian stocks

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.14 per cent

Asian stocks edged higher on Wednesday ahead of a policy decision from the Fed later in the day, while the yen was stuck near one-year lows against the dollar as Tokyo ramped up intervention warnings.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.14 per cent. The index has clocked three consecutive months of losses. Japan’s Nikkei was up 2 per cent.

European stocks looked set to open on a surer footing, with the Eurostoxx 50 futures 0.34 per cent higher, German DAX futures 0.37 per cent higher and FTSE futures up 0.27 per cent.

The spotlight on Wednesday will firmly be on the Fed’s policy decision, with the central bank broadly expected to hold rates steady. Comments from Fed Chair Jerome Powell will be evaluated to determine where interest rates are headed and how long they will stay higher.

Erik Weisman, chief economist and portfolio manager at MFS Investment Management, said the Federal Reserve will keep the option of future rate hikes firmly on the table until the labour market cools significantly and inflationary pressures ease.

Chairman Powell will also argue that the lagged effects of earlier hikes have not fully impacted the economy and that patience is prudent, Weisman added.

Markets are pricing in a 29 per cent probability of a 25 bps hike in December and a 35 per cent probability of a 25 basis point hike in January, according to the CME FedWatch tool.

Treasury yields remained elevated, with the yield on 10-year Treasury notes 4.5 bps higher to 4.920 per cent. The yield on the 30-year Treasury bond was 5.4 bps higher to 5.078 per cent.

Claudio Irigoyen, global head of economics at BofA Global Research, said the vital question for the next three to five years in the discussion about U.S. fiscal policy is whether interest rates will go back to pre-pandemic levels.

Or if this is a new regime of higher real interest rate, Irigoyen added. And I think that I am more on the camp of the second option.

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