Asian Equities Mixed Ahead of Fed Meet, Yen Falls: Markets Wrap

(Bloomberg) — Stocks in Asia were mixed 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.

Most Read from Bloomberg

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

US equity futures were slightly lower following gains in Wall Street, which were spurred on by a rebound in the “Magnificent Seven” cohort of tech megacaps. Nvidia Corp.’s new chips helped support the rally.

Traders have stepped up short Treasury bets in anticipation of a selloff ahead of the Fed’s decision due later 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 climbed for a fifth day, strengthening against most major currencies. 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. Separately, Hong Kong fast-tracked into law 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 edged lower after a two-day rally, while gold steadied after Tuesday gains. Bitcoin fell against the dollar for a third session in a further retreat from its recent highs and traded at around $63,000.

Key events this week:

Eurozone consumer confidence, Wednesday
Fed rate decision; Chair Jerome Powell holds news conference, Wednesday
Reddit’s IPO, Wednesday
ECB’s Christine Lagarde speaks, Wednesday
Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, Thursday
Bank of England rate decision, Thursday
US Conference Board leading index, existing home sales, initial jobless claims, Thursday
Nike, FedEx earnings, Thursday
Japan CPI, Friday
Germany IFO business climate, Friday
Atlanta Fed President Raphael Bostic speaks, Friday
ECB’s Robert Holzmann and Philip Lane speak, Friday