Asia shares slip as markets await Fed rate rise, eye China

SYDNEY: Asian markets were trading mostly weaker on Wednesday ahead of an expected U.S. Federal Reserve interest rate rise later in the day, and as investors awaited details of China’s economic stimulus package.

European investors were expected to show similar caution, with the pan-region Euro Stoxx 50 futures down 0.39%, FTSE futures off 0.2%, and France’s CAC 40 futures down 0.53%. German DAX futures were flat.

U.S. stock futures, the S&P 500 e-minis, were down 0.01% at 4,595.8.

The Fed’s July decision will be announced later on Wednesday following a two-day meeting. The benchmark rate is expected to be lifted to a range between 5.25% and 5.5%, but money market traders are split on the odds of another hike later in the year.

“The market will be closely watching the Fed’s statement to see if there’s a tilt towards dovishness or whether it will stay more hawkish around the inflation rhetoric,” said Marcella Chow, JPMorgan Asset Management’s global market strategist.

“Whether this is the last rate rise depends on that data. If inflation momentum starts to ease then the Fed could pause … I think the period of peak rates is approaching.”

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3%, after U.S. stocks ended the previous session with mild gains. The index is up 3.8% so far this month.

The yield on benchmark 10-year Treasury notes rose to 3.8945%, compared with its U.S. close of 3.912% on Tuesday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 4.8848% compared with a U.S. close of 4.893%.

Australia was the only major market across the Asia Pacific region to see shares rise, with the S&P/ASX 200 index up 0.81%. Japan’s Nikkei stock index was off 0.06% after recording steeper losses earlier in the session.

In Hong Kong, the Hang Seng index was down 0.79% and China’s blue chip CSI300 index was off 0.46% in early trade.

Positive sentiment returned to China’s market on Tuesday, when the CSI 300 Index snapped a six-day losing streak by closing up nearly 3% to record the best day since last November.

The gains were driven by pledges by China’s leadership this week to support the economy through a “tortuous” post-pandemic recovery, but they offered very little detail on specific measures, causing mixed feelings among investors and economists.

“We’re not expecting a silver bullet in terms of any fiscal or monetary stimulus,” said David Chao, Invesco’s Asia Pacific strategist.

“The market participants are looking for a big stimulus package in China, but I think the government has a different perspective. They are looking for more high quality growth that is less reliant on property and infrastructure and more reliant on consumption. There is a desire for capital to flow to policy supported sectors.”

In the currency market, the dollar rose 0.1% against the yen to 141.04 in afternoon trade. It is still some distance from its high this year of 145.07 on June 30.

The euro was flat at $1.1049, having gained 1.27% in a month. Markets have fully priced in a 25-basis-point rate hike by the ECB at its meeting this week, though the path of future rate increases beyond July remains up in the air.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 101.33.

U.S. crude dipped 0.63% to $79.13 a barrel. Brent crude was down 0.61% at $83.13.

Gold was weaker after trading up earlier in the day, with spot gold at $1962.99 per ounce. – Reuters