Investors were cautious in Asian trading on Wednesday as they nervously awaited what is expected to be the Federal Reserve’s biggest interest rate hike in more than two decades.
With inflation showing few signs of slowing from 40-year highs, the US central bank has embarked on a hawkish tightening policy this year, sending shivers through global markets.
The prospect of higher borrowing costs has been heightened by a series of crises, including war in Ukraine, rising oil prices and Covid lockdowns in China that have strangled crucial global supply chains.
The Fed must now distinguish between controlling the surge in prices and ensuring that it does not derail the recovery of the world’s largest economy.
“The Fed remains very focused on reducing inflation, however, any new hawkish pivot will likely be tempered to some degree by the desire to achieve a soft landing,” said Blerina Uruci of T. Rowe Price.
The Fed is expected to announce a 50 percentage point hike on Wednesday – its largest since 2000 – but boss Jerome Powell’s post-meeting press conference will be closely watched for a sense of future hikes.
Speculation swirled that 75 points could be on the table at some point this year.
“Powell will go back to ‘we’re not on pre-determined rate hikes’ or something like that – ‘we go into every meeting with an open mind and talk about it and see where we go from there,'” said Tony Farren, Managing Director of Mischler Financial Group.
“The market would view that as a hawk. To make his comments seem dovish, he would have to end the 75 basis point discussion. And while I don’t think he’ll approve of it, I don’t think he’ll ‘ I’m going to shut up.”
After a largely positive lead from Wall Street, Asian markets were mixed in thinning holiday trade.
Hong Kong, Singapore and Manila fell but Sydney, Seoul, Taipei and Wellington fell.
Tokyo, Shanghai, Jakarta, Kuala Lumpur and Bangkok have been closed.
Oil prices recorded gains after falling further on Tuesday, fueled by the expected impact of demand from China’s coronavirus shutdowns, including the country’s largest city, Shanghai.
The measures offset supply problems caused by the war in Ukraine and Russian fuel import bans, even as the European Union discusses the continuation of US and UK embargoes.
A huge release of crude from reserves by dozens of countries, including the United States, also helped keep prices subdued.
Investors are awaiting a meeting of OPEC and other major producers, including Russia, on Thursday where they will discuss whether or not to increase production more than expected.
– Key figures around 02:30 GMT –
Hong Kong – Hang Seng Index: DOWN 0.8% to 20,943.01
Tokyo – Nikkei 225: Closed for holidays
Shanghai – Composite: Closed for a public holiday
Euro/dollar: UP at $1.0528 vs. $1.0519 on Tuesday
Pound/dollar: UP to $1.2494 from $1.2491
Euro/pound: UP at 84.28 pence against 84.17 pence
Dollar/yen: DOWN to 130.09 yen from 130.14 yen
West Texas Intermediate: UP 1.0% to $103.43 a barrel
North Sea Brent Crude: UP 0.9% to $105.93 a barrel
New York – Dow: UP 0.2% to 33,128.79 (closing)
London – FTSE 100: 0.2% up to 7,561.33 (close)