By Stella Qiu and Alun John
BEIJING (Reuters) – Asian stock markets got off to a cautious start on Wednesday after another volatile session on Wall Street as investors braced for the outcome of the Fed’s late-day meeting and any hint of a faster tightening of monetary policy.
MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.26% early Wednesday, but the index has slipped 2.4% this year and is testing a one-year low from mid- December.
Concerns that the Fed’s planned interest rate hikes could hammer Asian stock markets weighed on the regional benchmark, though moves elsewhere were even more dramatic.
Globally, U.S. stocks posted their worst week since 2020 last week, and the MSCI World Index is on track for its biggest monthly decline since the COVID-19 pandemic hit markets in March 2020.
The Japanese Nikkei fell 0.8% to hover around its lowest level since December 2020.
The Fed is due to update its policy plan later on Wednesday, likely outlining the timing of expected rate hikes and shrinking its massive balance sheet.
“Asian markets are currently being affected by volatility in global markets, concerns over Fed tightening on rising inflation, and uncertainty over events in Russia and Ukraine,” Mansoor Mohi-uddin said. , chief economist at the Bank of Singapore.
Rising tensions as Russian troops massed on the Ukrainian border added to a risk-averse environment for investors.
“However, we expect the Fed meeting not to add to volatility. The central bank is not expected to complete its quantitative easing until March and although it will signal that interest rates are likely to be raised in Also in March, the Fed will endorse market expectations for quarterly 25 basis point hikes for its federal funds rate rather than tightening more aggressively this year,” Mohi-uddin added.
Money markets are pricing in the first rate hike by the Fed in March, with three more quarter-point increases by the end of the year.
Fed tightening puts pressure on some central banks in Asia to follow suit, which could hurt their stock markets, as happened in 2013 when the U.S. central bank began to cut its post-financial crisis stimulus measures.
“As long as turbulence remains relatively contained in equity markets, the bar for the Fed to become dovish is high,” Nomura analysts said in a note.
They said they believed some members of the Fed’s policy committee would interpret the latest stock sale as a potential removal of some of the “foam” in the market, so it wouldn’t change their point of view. view, especially amid concerns about high inflation.
In early trading on Wednesday morning, China’s blue chip index was up 0.4%, while Hong Kong’s Hang Seng index was up 0.6%.
Hao Hong, head of research at BOCOM International, expects limited investor appetite to hold large positions in Asia after strong market selling ahead of the Chinese New Year.
US Treasuries were flat on Wednesday, with yields on two-year bonds at 1.0273%, holding on to gains made earlier this month. The yield on the benchmark 10-year Treasuries was 1.7814%, slightly below the two-year high of 1.9% hit last week. [US/]
S&P 500 futures fell 0.13% and Nasdaq futures were flat.
The previous trading day, the Dow Jones Industrial Average fell 0.19%, the S&P 500 lost 1.22% and the Nasdaq Composite fell 2.28%.
The dollar index against a basket of major currencies remained virtually unchanged, although the US greenback lost ground against the safe-haven yen, which has benefited from a flight to safety in recent months, and the Australian dollar. [FRX]
U.S. crude fell 0.4% on Wednesday to $85.26 a barrel and Brent was down 0.16% to $88.04 a barrel.
Spot gold added 0.1% to $1,848.41 an ounce, after hitting a two-month high overnight as investors sought safety.
(Reporting by Stella Qiu and Alun John; Editing by Lincoln Feast.)