US equity futures climbed and Asian stocks were mixed Wednesday as traders awaited a Federal Reserve decision that could buffet markets by shaping expectations for monetary-policy tightening.
Japanese shares slid, while China’s CSI 300 index gained but remained on the cusp of a technical bear market with state media calling on investors to hold their nerves amid this year’s global selloff. US contracts initially sank in Asia before turning higher. European futures were in the green.
Wall Street delivered another volatile session Tuesday. The S&P 500 erased a near-3% intraday slide but then fell again to the lowest since October, led by a drop in technology stocks. Microsoft Corp. rebounded in extended trading on reassuring forecasts after releasing earnings.
The benchmark US 10-year Treasury yield was little changed ahead of the Fed, while a dollar gauge fluctuated. Crude held most of its recent rally, in part on the risk that any Russia-Ukraine conflict could disrupt supplies.
Traders are waiting to see how hawkish the Fed sounds in the fight against high inflation — both over interest-rate hikes expected from March and subsequent reductions in its holdings of Treasuries. Ebbing stimulus as the economic rebound from the pandemic notches down a gear could be a recipe for more market swings. Global stocks have already shed some 7% in 2022.
While the Fed could spur more selling if it comes off as hawkish, Chair Jerome Powell will likely say policy is data-dependent and supply chains are improving, while indicating that inflation could be peaking, Frances Stacy, portfolio strategist at Optimal Capital, said on Bloomberg Television.
“I think what that’s going to do is potentially reassure markets that the Fed put is ready, willing and able,” she said. “That could cause some serious enthusiasm and a short squeeze.”
Goldman Sachs Group Inc. strategists warned that the risk of a “growth shock” to equities is increasing. The International Monetary Fund cut its global economic expansion forecast for 2022, citing weaker prospects for the U.S. and China along with persistent inflation.
In the cryptocurrency sector, Bitcoin extended its gains for the week, trading at near $38 000.
Here are some more views about the Fed:
- “For the Fed, the current risk-asset drawdown certainly makes their job more difficult, but we don’t see the level of financial conditions tightening as commensurate with a dovish message,” Ed Acton, a strategist at Citigroup Inc., wrote in a note. “Instead, the FOMC may seek to underline the current inflation risks as a ‘constraint’ on monetary policy going forward.”
- “They could end QE a month earlier” in February versus March, Kelsey Berro, fixed-income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television, referring to quantitative easing. “That would just reinforce the fact that we expect the first rate hike in March and then quarterly rate hikes after that.”
- “A moderately hawkish Powell would be dovish in market terms,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note. “If Powell says that the FOMC is committed to getting inflation on track and still hopeful that a couple of hikes combined with some QT will be enough, that is dovish by market pricing,” he said, referring to quantitative tightening.
- What to watch this week:
- Fed, Bank of Canada monetary policy decisions Wednesday.
- EIA crude oil inventory report Wednesday.
- US new home sales, wholesale inventories Wednesday.
- South African Reserve Bank rate decision Thursday.
- US initial jobless claims, durable goods, GDP Thursday.
- Euro zone economic confidence, consumer confidence Friday.
- US consumer income, University of Michigan consumer sentiment Friday.
Some of the main moves in markets:
- S&P 500 futures rose 0.2% as of 6:52 a.m. in London. The S&P 500 fell 1.2%
- Nasdaq 100 futures rose 0.6%. The Nasdaq 100 fell 2.5%
- Japan’s Topix index shed 0.3%
- South Korea’s Kospi index fell 0.4%
- Hong Kong’s Hang Seng index was little changed
- China’s Shanghai Composite index rose 0.6%
- Euro Stoxx 50 futures added 0.7%
- The Bloomberg Dollar Spot Index was flat
- The euro was at $1.1297
- The Japanese yen was at 113.96 per dollar
- The offshore yuan was at 6.3281 per dollar
- The yield on 10-year US Treasuries held at 1.77%
- West Texas Intermediate crude fell 0.1% to $85.53 a barrel
- Gold was at $1 846.59 an ounce