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Stocks firm, dollar on edge ahead of Fed decision

2023-02-01T02:18:54Z

Passersby walk past an electric stock quotation board outside a brokerage in Tokyo, Japan, December 30, 2022. REUTERS/Issei Kato/Files

Asia’s stockmarkets steadied on Wednesday, with signs of a slowdown in U.S. wages bolstering hopes that the Federal Reserve could hint at an end to interest rate hikes at its meeting later in the day.

Wall Street indexes had rallied, as had bonds to a lesser extent, while the dollar gave up gains overnight when the Fed’s preferred wages gauge, the U.S. employment cost index, showed a 1% rise last quarter, its smallest increase in a year.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was up 0.6% in early trade, following a 1.2% drop on Tuesday, while Japan’s Nikkei (.N225) rose 0.7%.

The Fed will announce its rate decision at 1900 GMT, followed by a news conference with Chair Jerome Powell half an hour later.

Interest-rate markets have priced in a slowdown in the cracking pace of rate hikes, with a 25 basis point hike seen bringing the Fed funds rate target range to 4.5-4.75%.

Barring surprises, the focus will be on Powell’s tone. The market is trying to gauge whether he foreshadows an endpoint for hikes in the near future, as well as whether he pushes back on market pricing for rate cuts beginning as soon as the second half of this year.

“The market is anticipating some pushback from Powell, although it’s difficult to pin down how much is enough to convince the market,” said Brian Daingerfield, head of G10 currency strategy at NatWest Markets.

“Anything short of Powell going 10 for 10 hawkish may ultimately be seen as being not hawkish enough. Conversely, the market may take even the smallest dovish concession and run with it.”

Currency trade has been in a holding pattern ahead of the Fed and Bank of England and European Central Bank meetings that follow on Thursday. But the U.S. wages data wiped out some small dollar gains made earlier this week amid some nerves that the Fed sticks to its hawkish stance.

The dollar dropped for a fourth straight month in January, and lost 1.5% on the euro and 0.8% on the yen . Both pairs were steady in early Asia trade, with the euro at $1.0860 and the dollar buying 129.91 yen.

The Australian dollar , which gained 3.5% through January, took a breather at $0.7052.

U.S. treasuries were cautiously firmer in Asia, with benchmark 10-year yields down 2 bps to 3.5105%. S&P 500 futures fell 0.3%.

Solid earnings also lifted Wall Street and the mood overnight, even as company executives struck a cautious tone as many firms brace for an expected economic slowdown.

Exxon (XOM.N) posted a record $59 billion adjusted profit. United Parcel Service (UPS.N), the world’s biggest package delivery firm, beat forecasts and shares rose 4.7%.

Caterpillar (CAT.N) and McDonald’s (MCD.N) shares fell as the companies warned of inflation squeezing profit margins.

Macroeconomic data was less encouraging. Japan’s factory activity contracted for a third straight month in January, a private survey showed on Wednesday.

South Korea posted a record monthly trade deficit for January due mainly to a far worse-than-expected drop in exports. Unemployment rose in New Zealand, though only a little bit and from record lows.

In commodity markets, optimism for demand supported oil prices and Brent crude futures were up 0.23% to $85.67 a barrel. Gold , which rallied on the dollar’s weakness through January, paused at $1,927 an ounce.

Indian conglomerate Adani, meanwhile, completed a $2.5 billion share sale on Tuesday as it fends off an attack from a U.S. short seller. Adani Enterprises (ADEL.NS) stock closed below the lower end of the stock issue price on Tuesday.

Prices for dollar bonds in Adani Group companies were steadying in Asia trade on Wednesday after last week’s rout.

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