Asia Stocks Set for Cautious Start as Fed in Focus: Markets Wrap

This content was published on September 19, 2023 – 23:26

(Bloomberg) — Equity markets in Asia are poised for a muted open after US stocks posted modest losses ahead of the Federal Reserve’s policy decision, with traders betting interest rates will be higher for longer to curb inflation.

Futures for benchmarks in Australia and Hong Kong slipped while those in Japan were little changed. Contracts for US stocks were also steady in early Asia trading Wednesday after the S&P 500 closed down though off session lows.

Australian and New Zealand bond yields ticked higher in early Asian hours, mirroring the moves in both the five- and 10-year Treasury yields which hit the highest levels since 2007 on Tuesday.

In a sign of further headwinds facing Asian markets, US-listed Chinese stocks fell the most in nearly two weeks on Tuesday. Brent oil briefly topped $95 a barrel, adding to inflation concerns.

Fed Chair Jerome Powell and his colleagues are widely expected to hold rates Wednesday. Still, supply shocks such as climbing oil prices present the central bank with a quandary as they simultaneously boost inflation and curb economic growth. Surging energy costs played a role in tipping the US into recession in the mid-1970s, as well as the early 1980s and 1990s.

Aside from expectations of a hawkish hold, investors will focus on the Fed’s updated quarterly rate projections — known as the dot plot — that will be released at the conclusion of the policy meeting. High on the watchlist will be whether these forecasts continue to reveal a median view for one more quarter-point hike this year and whether forecasts for 2024 scale back the 100 basis points of rate reductions that officials foresaw in June.

Since the Fed’s June forecasts, the disinflationary process has stabilized somewhat — but inflation risks are increasing, said Lauren Goodwin at New York Life Investments. As a result, officials will likely keep the incremental quarter-point hike in their projections, she noted — adding that a final increase would possibly be delivered in November.

“Our Fed checklist suggests the bar for rate cuts is still high,” Goodwin said. “Unless we see a meaningful economic slowdown, inflation is likely to fall in a slow and non-linear way. In other words, for the Fed to cut rates next summer — like the bond market has priced — we believe we’d need to see a recession.”

In Asia, China’s commercial banks are likely to lower prime rates on short-term loans for a second month in a row, while holding five-year rates steady, according to Bloomberg Economics. On the five-year benchmark, “other moves to support the housing market, including a recent expansion of first-home buyer benefits, make cutting the home loan benchmark less urgent,” according to BE.

Also in focus, Chinese developer Country Garden Holdings Co. passed an initial deadline to pay dollar bond interest with holders yet to receive the money.

Corporate Highlights

Instacart racked up a 12% trading-debut gain in one of the year’s biggest initial public offerings.
Klaviyo Inc. priced shares in its IPO above the marketed range, Bloomberg reported.
Walt Disney Co. slid on plans to nearly double its theme-park spending to $60 billion over the next 10 years.
Amazon.com Inc. says it will hire 250,000 employees this holiday shopping season and boost average pay for logistics personnel to about $20.50 an hour as it seeks to recruit and retain workers amid a labor shortage.
Starbucks Corp. slipped as TD Cowen downgraded it to market perform, flagging “worrisome” pressures that could challenge same-store sales in China.
Block Inc. dropped as the digital-payments firm said that Alyssa Henry, the CEO of its Square business, is leaving, with Jack Dorsey to take over.
Royal Caribbean Cruises Ltd. and Carnival Corp. climbed after being upgraded by Truist Securities, which cited strong trends and “cooled off” stocks.
Cboe Global Markets Inc. rose after the firm announced a chief executive officer change that analysts described as unexpected, while they were positive on the appointment to fill the role.
CVC Capital Partners is gearing up for a potential listing as soon as November amid improved investor sentiment for new stock offerings, people with knowledge of the matter said.

Key events this week:

Japan trade, Wednesday
China loan prime rates, Wednesday
UK CPI, Wednesday
Federal Reserve policy meeting followed by Fed Chair Jerome Powell’s news conference, Wednesday
Bank of Canada issues summary of its September policy meeting, Wednesday
Eurozone consumer confidence, Thursday
Bank of England policy meeting, Thursday
US leading index, initial jobless claims, existing home sales, Thursday
China’s Bund Summit, Friday
Japan CPI, PMIs, Friday
Bank of Japan rate decision, Friday
Eurozone S&P Global Eurozone PMIs, Friday
US S&P Global Manufacturing PMI, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 8:21 a.m. Tokyo time. The S&P 500 fell 0.2%
Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.2%
Nikkei 225 futures were little changed
Hang Seng futures fell 0.1%
S&P/ASX 200 futures fell 0.2%

Currencies