Asian stocks follow Wall Street’s late recovery with heavy focus on Fed

Asian stocks follow Wall Street’s late recovery with heavy focus on Fed

by Julie Chu

HONG KONG (Reuters) – Asian shares rose in early trading on Tuesday after a last-hour recovery in New York as investors turned their attention to an expected big interest rate hike by the Federal Reserve this week to tackle inflation.

Even more than the Ukraine war or corporate profits, the actions of the US central bank are driving market sentiment as traders try to position themselves in an environment of rising interest rates.

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.7% while US stock futures rose 0.11%.

It advanced 0.38% and Australian shares rose 1.1%.

China’s benchmark CSI300 index is up 0.54% in early trade. Hong Kong opened 0.92% higher.

On Monday, Wall Street’s major indexes closed higher after a swing during the session as investors waited to see how aggressively the Federal Reserve could raise interest rates at this week’s policy meeting.

Prices rebounded after posting their worst weekly percentage drop since June, as markets were fully priced in for an interest rate hike of at least 75 basis points at the end of the Federal Reserve’s September 20-21 monetary policy meeting.

Markets are pricing in rates rising to 4.5% by early 2023, compared to the Fed’s current 2.25%-2.5% policy rate range. This is high enough to take a cut in the growth, and causes bond yields to fall at the longer end of the curve.

The S&P 500 rose 0.64%, the S&P 500 rose 0.69%, and the Nasdaq rose 0.76%.

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Higher interest rates caused a massive sell-off in government bonds. The return on the benchmark index remained high at 3.4846%, after hitting 3.518% on Monday, its highest level since April 2011.

The two-year yield, a gauge of future inflation expectations, touched 3.9528% after hitting a new 15-year high of 3.970%.

It is not only in the US that interest rates are expected to rise. The meeting of most central banks this week – from Switzerland to South Africa – is expected to pick up with markets divided over whether the BoE will move 50 or 75 basis points.

But China’s central bank went its own way, lowering its repo rate on Monday by 10 basis points to prop up its faltering economy.

The other exception is the Bank of Japan, which is also due to meet this week and which has shown no sign of abandoning its ultra-easy yield curve policy despite the sharp decline in the Yen.

Higher yields helped strengthen the dollar and made gold less attractive.

Which measures the coin against six, was 0.0373% stronger at 109.58.

Gold was a little lower. It was trading at $1,675.63 an ounce. [GOL/]

Oil prices also fell, under pressure from the strength of the dollar, and the outlook for global economic growth deteriorated. It fell 0.17 percent to $85.58 a barrel. It fell to $91.9 a barrel.

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