Stocks firm, dollar on edge ahead of Fed decision

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Singapore, Feb. 1 (BNA): Asia's stock markets steadied on Wednesday, with signs of a slowdown in U.S. wages bolstering hopes that the Federal Reserve could hint at an end to interest rate hikes at its meeting later in the day.


Wall Street indexes had rallied, as had bonds to a lesser extent, while the dollar gave up gains overnight when the Fed's preferred wages gauge, the U.S. employment cost index, showed a 1% rise last quarter, its smallest increase in a year, Reuters reports.


MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.6% by mid-session, following a 1.2% drop on Tuesday, while Japan's Nikkei was flat.


The Fed will announce its rate decision at 1900 GMT, followed by a news conference with Chair Jerome Powell half an hour later.


Interest-rate markets have priced in a slowdown in the cracking pace of rate hikes, with Wednesday's expected 25 basis point (bps) hike seen bringing the Fed funds rate target range to 4.5-4.75%.


Barring surprises, the focus will be on Powell's tone. Investors will be trying to gauge whether and how hard he pushes back on market pricing for rate cuts beginning as soon as the second half of this year.


"The market is anticipating some pushback from Powell, although it's difficult to pin down how much is enough to convince the market," said Brian Daingerfield, head of G10 currency strategy at NatWest Markets.


"Anything short of Powell going 10 for 10 hawkish may ultimately be seen as being not hawkish enough. Conversely, the market may take even the smallest dovish concession and run with it."


Currency trade has been in a holding pattern ahead of the Fed and Bank of England and European Central Bank meetings that follow on Thursday.


The dollar dropped for a fourth straight month in January, and lost 1.5% on the euro and 0.8% on the yen. Both pairs were steady in Asia, with the euro at $1.0865 and the dollar buying 130.14 yen.


The Australian dollar, which gained 3.5% through January, took a breather at $0.7072.


U.S. treasuries were cautiously firmer in Asia, with benchmark 10-year yields down 2 bps to 3.5069%. S&P 500 futures fell 0.3%.



Ahead of the Fed meeting, European inflation data is due with risks of an upside surprise after Spanish price rises came in hotter-than-expected earlier in the week.


U.S. manufacturing data is also due, amid more signs of cracks in the global economy.


Japan's factory activity contracted for a third straight month in January, a private survey showed on Wednesday. South Korea posted a record monthly trade deficit for January due mainly to a far worse-than-expected drop in exports.


Facebook owner Meta reports earnings later on Wednesday. Company executives had struck a cautious tone at earnings calls on Tuesday, as a slowdown looms.


Exxon posted a record $59 billion adjusted profit, though Caterpillar and McDonald's shares fell as the companies warned of inflation squeezing profit margins.


In commodity markets, optimism for demand supported oil prices and Brent crude futures were up 0.23% to $85.67 a barrel. Gold , which rallied on the dollar's weakness through January, paused at $1,927 an ounce.


Indian conglomerate Adani, meanwhile, remained under pressure, with Adani Enterprises shares down 3% and below the lower end of the offer price for a $2.5 billion stock sale that ended on Tuesday.


Prices for dollar bonds in Adani Group companies were steadying in Asia trade on Wednesday after last week's rout.