Asian shares crawl higher ahead of Fed meeting
Asian shares crept higher this morning, marking a 10th session of consecutive gains, but slowed momentum on doubts of a swift global recovery from coronavirus ahead of today’s US Federal Reserve meeting.
MSCI’s index of Asia-Pacific shares outside Japan climbed 0.3 per cent, while Japan’s Nikkei rose 0.1 per cent.
Safe havens such as gold and the Japanese yen climbed as optimism over the pandemic ebbed. Gold rose slightly, while the yen held onto two days of big gains. Commodity currencies recovered from yesterday’s losses.
The world watches
Although no big policy shifts are expected, all eyes will be on the Fed meeting later today, as America grapples with its response to the pandemic and large protests continue across the country.
Nevertheless, the Fed will release economic forecasts for the first time since December, and any suggestion of chairman Jay Powell taking his foot off the pedal could lift the dollar.
“The Fed tonight is a key variable in determining whether this is a pit-stop or U-turn,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
The Fed’s guidance as to how long and how low rates can be held down and the prospect of yield-curve control will be closely watched, Varathan said in a note.
S&P 500 futures greeted slight gains of 0.6 per cent to recoup some of yesterday’s losses, but other moves were smaller. Benchmark stock indexes in Australia, Hong Kong and South Korea rose less than 0.3 per cent. Benchmark US 10-year yields held steady at 0.8287 per cent, 13 basis points below Friday’s high of 0.9590 per cent.
The global backdrop
Today’s Fed meeting takes place on the backdrop of increasing tensions between the US and China, and a dented optimism about a global recovery from Covid-19.
The prospect of a slow return for ailing markets now seems to be weighing on investors and charge hopes for the Fed to do more to stimulate a recovery.
“We expect the Fed will do more especially when the ‘unprecedented’ second quarter of 2020 comes to pass, including expanding its various lending programmes and even dabble into yield curve control,” analysts at Singapore UOB Bank said today.
Data this morning showed China’s May factory gate prices fell by the sharpest annual rate in more than four years, in a sign that coronavirus is dragging on global demand.
German exports and imports in April posted their biggest drop since records began in 1990, data showed last night, as the country grapples with its deepest recession since World War Two.
Oil prices were stunted by fresh concerns about oversupply and underlying economic weakness. Brent crude was last down one per cent for the session at $40.72 per barrel and US crude was down 1.4 per cent at $38.38 a barrel.