Asian Markets: Amidst a backdrop of mixed performance in Asian shares on Wednesday, oil prices descended to six-month lows, setting the stage for the Federal Reserve’s final policy decision of the year. Brent crude touched $72.75 a barrel, marking its lowest level since late June, while U.S. crude slid to $68.14, fueled by concerns over softening demand and a surplus in supply.
All eyes were on the Federal Reserve as it took center stage on Wednesday, preparing to announce its rate decision at the conclusion of its two-day policy meeting. Market expectations leaned toward policymakers maintaining interest rates, seemingly unfazed by a U.S. inflation reading that aligned with consensus forecasts. With the prospect of a static interest rate, attention shifted to Federal Reserve Chair Jerome Powell’s press conference and the unveiling of the dot plot, a visual representation of the future policy trajectory.
Vishnu Varathan, head of economics and strategy at Mizuho Bank, anticipated that the December Federal Open Market Committee (FOMC) meeting would be short on action but rich in drama. He suggested that while the consensus pointed to no rate hike, the meeting could be significant in terms of the interpretation of a potential Fed pivot and confidence in a soft landing.
Investors, however, appeared to be betting on the Federal Reserve easing its monetary policy in 2024. The CME FedWatch tool indicated a 75% chance of the first cut coming as early as May. This sentiment contributed to buoyant market conditions, propelling U.S. stocks to fresh highs in 2023 during Tuesday’s trading.
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MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a slight dip, edging 0.2% lower. Meanwhile, Japan’s Nikkei index saw a gain of 0.6%. In China, blue-chip stocks fell by nearly 0.5%, and Hong Kong’s Hang Seng index slid by 0.8%. Investors remained cautious, awaiting clues for further policy support from Beijing.
U.S. bond yields hovered near recent lows, with the two-year Treasury yield at 4.7245%, having hit a nearly six-month trough of 4.5400% earlier in December. The benchmark 10-year yield steadied at 4.2006%, near its lowest in three months.
In the currency market, the U.S. dollar was on the defensive against the British pound, standing at $1.2558. British wage growth slowed, as indicated by data on Tuesday, though it was likely still rising too fast for the Bank of England to consider relaxing its tough stance against cutting interest rates. The greenback against the yen stood at 145.48.
Investors, keen on signs of rate cuts in the coming year across major central banks, were also closely monitoring the Bank of Japan (BOJ). Many anticipate a potential shift away from the BOJ’s ultra-loose monetary policy. Analysts at Maybank suggested that the BOJ would likely stay steady at the December meeting, potentially considering an exit from the negative interest rate policy and yield curve control in Q2 2024.
In commodity markets, gold remained pinned near a three-week low, closing at $1,980.79 an ounce. The cautious sentiment prevailed as investors awaited the outcome of the Federal Reserve’s decision, looking for indications that could shape market dynamics in the coming months.