Stocks range-bound ahead of Federal Reserve meet, Yen falls

ABU DHABI / WAM/ BLOOMBERG

Stocks in Asia were mixed after US equities touched fresh peaks ahead of the Federal Reserve’s decision, with eyes on the future pace of rate cuts. The yen extended its decline.
Chinese equities gained as the country’s banks kept their benchmark lending rates unchanged. Focus is on a slew of key earnings including from Tencent Holdings Ltd. Australian shares slipped while Japanese markets were closed for a holiday.
European futures fell alongside US contracts, paring Tuesday gains on Wall Street when the “Magnificent Seven” cohort of tech megacaps staged a rebound. Nvidia Corp’s new chips helped support the rally, while in Asia, reports that the company was looking to buy Samsung Electronics Co’s memory chips sent the South Korean market higher. Gains for Chinese equities reflected “a base forming,” around the beaten-down market on signs of government support this year, Audrey Goh, head of asset allocation at Standard Chartered Wealth Management, told Bloomberg TV. “We need a bit more in terms of policy support from the government to entice investors back,” she said.
Traders have stepped up short Treasury bets ahead of the Fed’s decision was due later on Wednesday, when the central bank is expected to hold rates steady for a fifth consecutive meeting. Asia trading in Treasuries was closed on Wednesday given the holiday in Japan. The Bloomberg dollar index advanced for the fifth session, extending a nascent rebound that has emerged as traders recalibrate Fed bets. 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 two percent target. “You don’t necessarily have to wait to get to two percent before you can start removing some of the restrictive policy,” said Michael Buchanan, co-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.
Elsewhere, export data in Taiwan and a monetary policy decision in Indonesia are due. Oil steadied after a two-day gain as an industry group flagged a fall in US crude stockpiles, while gold traded in a narrow band ahead of the Fed. Bitcoin fell against the dollar for a third session in a further retreat from its recent highs and traded at around $62,000.