After three days of losses, Asian stock markets stabilized on Wednesday as investors awaited any clues from the US Federal Reserve regarding a sharper tightening of monetary policy later in the day.
After significant losses earlier in the week, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.1 percent on Wednesday, bringing the index's year-to-date loss to 2.8 percent. It's testing the one-year low set in mid-December.
The Nikkei 225 recovered some of its early losses to trade 0.37 percent lower, close to its lowest level since December 2020.
The cautious stock market recovery appeared to be continuing in Europe, with Euro Stoxx 50 futures up 0.5 percent and FTSE futures up 0.8 percent.
After all three major US indices fell on Tuesday, Nasdaq futures rose 0.3 percent in Asian trading, while S&P 500 e-minis were flat.
After a two-day meeting, the Fed is expected to update its policy plan later on Wednesday (1900 GMT), and markets are pricing in the first-rate hike in March, followed by three more quarter-point hikes by year's end.
"Volatility in global markets, fears about Fed tightening in the face of increased inflation, and uncertainty over events in Russia and Ukraine are currently affecting Asian markets," said Mansoor Mohi-uddin, chief economist at Bank of Singapore.
"The Fed meeting, on the other hand, is unlikely to increase volatility. The Fed will end its quantitative easing program in March, and while it will signal that interest rates will likely be raised in March as well, the central bank will stick to market expectations for quarterly 25-basis-point hikes in the fed funds rate rather than more aggressive tightening this year "Mohi-uddin was also added. Growing tensions, as Russian troops massed on Ukraine's border, have made investors more risk-averse.
Last week, U.S. stocks had their worst week since 2020, and MSCI's world index is on track for its largest monthly drop since the COVID-19 epidemic struck in March 2020. Analysts, on the other hand, believed that this was unlikely to undermine the Fed's efforts to tighten policy.
China's blue-chip index fell 0.33 percent to its lowest level since October 2020 on Wednesday, while Hong Kong's Hang Seng Index was down 0.3 percent.As the Lunar New Year holiday approaches, Hao Hong, Head of Research at BOCOM International, forecasts little willingness from investors to keep large positions in Asia following strong market selling.
Treasury rates remained stable, with two-year notes yielding 1.0313 percent, retaining gains gained earlier this month. The yield on benchmark 10-year Treasury notes was 1.7743 percent, down from 1.9 percent last week, which was a two-year high. [US/]
The dollar index was virtually flat against a basket of major currencies, with the greenback nearing a month high against the euro the day before. (FRX)As investors booked profits from recent highs, U.S. crude slid 0.4 percent to $85.22 per barrel, while Brent crude fell 0.25 percent to $87.96 per barrel. [O/R]
On Wednesday, gold prices remained stable at $1,846 per ounce, close to the previous session's 10-week high. [GOL/]"The threshold for the Fed becoming dovish is high as long as turmoil in equity markets remains reasonably confined," said Nomura analysts in a note.
They claimed that some members of the Fed's policy committee would perceive the recent equities sell-off as removing some of the market's "froth," and that this would not change their minds, especially given concerns about high inflation.Source
