Asian shares, dollar wobble as investors brace for Fed outcome

TOKYO: Asian shares and the dollar were on tenterhooks on Tuesday as investors awaited the looming outcome of the Federal Reserve’s rates review, with all eyes on how the Fed steers monetary policy in the wake of Republican Donald Trump’s surprise election win last month.

Crude oil prices also pulled back after their surge to 18-month highs, while a raft of China data had little impact across asset markets.

Chinese data showed factory output and retail sales grew faster than expected in November, while fixed-asset investment was in-line with forecasts, adding to growing signs of stabilisation in the world’s second-biggest economy.

MSCI’s broadest index of AsiaPacific shares outside Japan edged down 0.1 per cent, while Japan’s Nikkei stock index was off early lows but still down 0.2 per cent by midday as the dollar came off overnight highs against the yen.

“The market has already priced in a rate hike and some are ready to take profits after confirming the result,” said Masashi Oda, general manager of strategic investment department at Sumitomo Mitsui Trust Asset Management.

The Fed is widely expected to hike interest rates for the first time in 2016 at its two-day meeting, with markets pricing in a nearly 100 per cent chance of a quarter per centage point increase to the Fed’s target range of 0.25 to 0.50 per cent.

What matters most to investors is the Fed’s statement and economic projections, which will be examined for any signs of reaction to Donald Trump’s surprise victory in the Nov 8 US presidential election.

“The big question is what sort of pace can we expect from the Fed for next year?” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

US Treasury yields have recently spiked on expectations that the Trump administration will enact policies to spark growth and inflation. In addition to these expectations, surging crude oil prices have also stoked inflation expectations.

On Monday, the yield on benchmark US 10-year notes touched 2.528 per cent, its highest since Sept. 29, 2014. It stood at 2.465 per cent on Tuesday.

Higher yields in turn lifted the dollar, which climbed as high as 116.120 yen on Monday, its highest since early February. But it was last flat on the day at 115.04 yen.

“There is some profit-taking, particularly by US hedge funds, ahead of the Fed meeting and the upcoming Christmas holiday,” Ogino said.

“But many Japanese importers are far behind in dollar-buying, so they would like to buy on dips, and the downside should be limited during Asian trading hours.”

The euro was also nearly flat at US$1.0634, while the dollar index, which tracks the greenback against a basket of six rival currencies, edged 0.1 per cent lower to 100.980.

Crude oil prices came off their highs after surging on Monday to their highest since mid-2015 on the back of a weekend deal by OPEC and non-OPEC producers to curtail output.

US crude futures slipped 0.4 per cent to US$ 52.64 a barrel, while Brent crude, the international benchmark for oil prices, was down 0.2 per cent at US$55.57.

Spot gold inched slightly higher to US$1,163.12 an ounce, recovering from 10-month lows hit on Monday as US Treasury yields came off their highs and the US dollar fell ahead of the Fed meeting. — Reuters