Markets Stagger Before the Fed
Investors kept Asian share markets largely range-bound on Wednesday, waiting for the Federal Reserve's anticipated rate rise later that day. A slight pullback in crude prices after earlier advances offered only marginal comfort. Because inflation remains far above the central bank's goal and the Middle East conflict has kept oil above $100 a barrel, policymakers are broadly expected to tighten borrowing costs for the first time since 2023. That expectation has dented a worldwide equity advance that pushed several indexes to records in the first half, and talk is building that another increase may come before year-end.[S1]
Fed Chair Kevin Warsh intensified expectations last month with what was viewed as a hawkish speech at the Jackson Hole gathering of central bankers and economists in Wyoming. Since then, strong jobs data and persistently high inflation have solidified market bets, with traders pricing a more than 90 percent probability that board members will tighten policy. Expectations of prolonged inflation helped push 10-year US Treasury yields above five percent this week, a level last seen in 2007 before the global financial crisis. Matt Weller of FOREX.com wrote that the vote will be the statement's most interesting element, noting that three or more dissents, or a dissent by Warsh himself, could frame even an immediate hike as a one-off insurance move rather than the start of a new cycle, while a unanimous decision would make another increase this year more likely.[S1]
Regional Moves and Oil Prices
Following declines in New York and Europe, Asian shares wavered between positive and negative territory Wednesday, as technology companies continued to weigh a plea from leading AI figures for the sector to slow its pace of development. Tokyo, Shanghai, Sydney and Manila retreated, while Hong Kong, Singapore, Wellington, Taipei and Jakarta also lost ground. Seoul was unchanged. Lower oil prices offered a measure of encouragement, yet both benchmarks stay comfortably above $100 a barrel amid the US-Iran standoff and Saudi Arabia's closure of a major pipeline after attacks. WTI shed 0.8 percent to $104.94, and Brent North Sea Crude eased 0.4 percent to $108.30.[S1]
In Asia, Tokyo's Nikkei 225 was down 0.1 percent at 63,396.00, Hong Kong's Hang Seng Index up 0.1 percent at 24,678.75, and Shanghai's Composite down 0.3 percent at 3,852.83. In currency markets, the dollar rose to 155.32 yen from 155.09 yen on Tuesday, the euro slipped to $1.1537 from $1.1542, the pound eased to $1.3473 from $1.3477, and the euro weakened to 85.63 pence from 85.64 pence. In New York, the Dow closed down 0.6 percent at 52,093.11, and London's FTSE 100 closed down 0.4 percent at 10,658.13.[S1]
Central Banks and Trade Talks in Focus
Friday brings the Bank of Japan's turn, after the Fed, and it too is tipped to tighten policy given accelerating inflation and the desire to shore up the yen. The currency has climbed versus the dollar this month, rebounding from a four-decade trough in July with help from an unprecedented joint Japanese-US intervention. Analysts say further gains are possible if the Fed cannot get prices under control. Invesco's David Chao noted that markets still expect US inflation to eventually fall to two percent, though a landing nearer three percent is quite plausible. Should the central bank be viewed as less credible on inflation, investors might be less inclined to hold dollars merely for higher US rates. The Bank of England is expected to leave its key rate untouched Thursday as UK growth falters.[S1]
Another focus is a scheduled meeting between US President Donald Trump and Chinese leader Xi Jinping, amid reports the two could settle on some tariff cuts. Bloomberg said both sides were reviewing reductions on certain goods, among them US energy and agricultural products, indicating they would prolong a one-year truce reached in 2025 after Trump's sweeping global tariffs.[S1]
