Asian markets displayed a mixed performance on Wednesday, accompanied by a slump in oil prices to six-month lows. Traders maintained a cautious stance as they awaited the Federal Reserve’s final policy decision of the year and sought clues regarding potential rate cuts in the coming year.
Brent crude touched $72.75 per barrel, marking its lowest point since late June, while U.S. crude slid to $68.14 per barrel, driven by concerns over softening demand and oversupply in the market.
All eyes were on the Federal Reserve as it took center stage for its two-day policy meeting, with expectations that policymakers would maintain interest rates, undeterred by a U.S. inflation reading that aligned with consensus forecasts. The focus shifted to Fed Chair Jerome Powell’s press conference and the release of the dot plot outlining the future policy trajectory.
Vishnu Varathan, Head of Economics and Strategy at Mizuho Bank, noted the anticipation for a potentially dramatic December Federal Open Market Committee (FOMC) meeting, highlighting the refreshed dot plot and revisions to economic projections.
Market sentiment remained positive, with investors largely anticipating the Fed’s move toward easing monetary policy in 2024. The CME FedWatch tool indicated a 75% probability of the first rate cut occurring as early as May 2024.
Despite this optimism, MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.2% lower, failing to sustain the rally seen in U.S. stocks that reached new highs in 2023.
Japan’s Nikkei, however, experienced a 0.6% bounce, showcasing resilience. In China, blue-chip stocks declined nearly 0.5%, while Hong Kong’s Hang Seng index slid 0.8%, with investors closely monitoring signals for further policy support from Beijing.
U.S. bond yields remained near recent lows, with the two-year Treasury yield hovering around 4.7245%. The 10-year yield steadied at 4.2006%, close to its lowest level in three months.
In the currency market, the U.S. dollar was on the defensive, trading at $1.2558 against the British pound. Concerns about the pace of British wage growth, despite its slowdown, raised questions about potential interest rate cuts by the Bank of England.
The greenback also stood at 145.48 yen. Investors scrutinized major central banks for signs of potential rate cuts in the coming year, while in Japan, expectations grew for the Bank of Japan (BOJ) to move away from its ultra-loose monetary policy. Analysts at Maybank suggested the BOJ would likely maintain stability in its December meeting, with a potential exit from negative interest rate policy and yield curve control anticipated in Q2 2024.
Gold prices remained subdued, hovering near a three-week low at $1,980.79 per ounce, reflecting the overall cautious sentiment in the markets.
