(Bloomberg) — Asian stocks were mixed Wednesday after another volatile Wall Street session with traders on edge ahead of a Federal Reserve policy decision that’s expected to signal an interest-rate liftoff in March.
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Japanese shares dipped after entering a correction, while China averted a technical bear market with modest gains. Technology stocks contributed to a climb in Hong Kong.
U.S. equity futures initially sank in Asia before turning higher. The S&P 500 erased a near-3% intraday slide Tuesday but subsequently fell again to close at the lowest since October, while the tech-heavy Nasdaq 100 underperformed. Microsoft Corp. rebounded in extended trading on reassuring forecasts.
The benchmark U.S. 10-year Treasury yield was little changed ahead of the Fed, while a dollar gauge was steady. Crude oil held most of its rally, in part on the risk that a Russia-Ukraine conflict could disrupt supplies.
Traders are waiting to see how hawkish the Fed sounds in the fight against high inflation, both over rate hikes and reducing its holdings of Treasuries. The prospect of receding stimulus as the economic rebound from the pandemic notches down a gear could be a recipe for more market swings. Global stocks are already down over 7% this year.
While the Fed could spur more selling if they flex hawkish, Chair Jerome Powell will likely say policy is data-dependent and supply chains are improving, while indicating that inflation could be peaking, Frances Stacy, portfolio strategist at Optimal Capital, said on Bloomberg Television.
“I think what that’s going to do is potentially reassure markets that the Fed put is ready, willing and able,” she said. “That could cause some serious enthusiasm and a short squeeze.”
Goldman Sachs Group Inc. strategists warned that the risk of a “growth shock” to equities is increasing. The International Monetary Fund cut its global economic expansion forecast for 2022, citing weaker prospects for the U.S. and China along with persistent inflation.
In the cryptocurrency sector, Bitcoin held on its gains for the week, trading at around $37,000.
Here are some more views about the Fed:
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“For the Fed, the current risk-asset drawdown certainly makes their job more difficult, but we don’t see the level of financial conditions tightening as commensurate with a dovish message,” Ed Acton, a strategist at Citigroup Inc., wrote in a note. “Instead, the FOMC may seek to underline the current inflation risks as a ‘constraint’ on monetary policy going forward.”
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“They could end QE a month earlier” in February versus March, Kelsey Berro, fixed-income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television, referring to quantitative easing. “That would just reinforce the fact that we expect the first rate hike in March and then quarterly rate hikes after that.”
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“A moderately hawkish Powell would be dovish in market terms,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note. “If Powell says that the FOMC is committed to getting inflation on track and still hopeful that a couple of hikes combined with some QT will be enough, that is dovish by market pricing,” he said, referring to quantitative tightening.
What to watch this week:
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Fed monetary policy decision Wednesday.
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EIA crude oil inventory report Wednesday.
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U.S. new home sales, wholesale inventories Wednesday.
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South African Reserve Bank rate decision Thursday.
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U.S. initial jobless claims, durable goods, GDP Thursday.
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Euro zone economic confidence, consumer confidence Friday.
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U.S. consumer income, University of Michigan consumer sentiment Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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S&P 500 futures were flat as of 10:53 a.m. in Tokyo. The S&P 500 fell 1.2%
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Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 2.5%
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Japan’s Topix index fell 0.6%
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South Korea’s Kospi index increased 0.1%
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Hong Kong’s Hang Seng index climbed 0.4%
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China’s Shanghai Composite index rose 0.7%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was at $1.1303
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The Japanese yen was at 113.84 per dollar
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The offshore yuan was at 6.3277 per dollar
Bonds
Commodities
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West Texas Intermediate crude fell 0.3% to $85.35 a barrel
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Gold was at $1,847.60 an ounce
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