Asia-Pacific markets set to trade cautiously as Fed takes center-stage

Pedestrians are reflected in a window as they walk past an electronic stock board at the ASX Ltd. exchange centre in Sydney, Australia, on Thursday, Feb. 14, 2019.

David Moir | Bloomberg | Getty Images

SINGAPORE — Asia-Pacific markets were set to trade lower on Wednesday as investors wait for the outcome of the U.S. Federal Reserve’s two-day policy meeting later in the day.

Australia shares inched lower, with the ASX 200 down 0.39% in early trade as most sectors fell. The energy and materials subindexes declined 0.92% and 1.12%, respectively as oil and mining stocks struggled for gains. Major miners Rio Tinto and BHP were down 1.4% and 1.13%.

Nikkei futures pointed to opening losses in the Japanese market at the top of the hour.

That follows an overnight session where the Dow Jones Industrial Average lost nearly 130 points, breaking a seven-day winning streak.

The Federal Open Market Committee’s policy meeting will take center stage, according to Carol Kong, a strategist at the Commonwealth Bank of Australia.

She explained in a morning note that both U.S. bond yields and the dollar could jump if the Fed’s post-meeting statement and Chair Jerome Powell’s remarks are not deemed dovish enough. “We do not expect the FOMC to be worried about or even note the lift in bond yields in their post‑meeting statement. Higher bond yields are not a constraint on the US economic recovery,” she wrote.

“We expect Chair Powell to note the FOMC has the tools to intervene if the bond market becomes disorderly or constrains the economic recovery,” Kong said, adding that the Australian bank also expects the Fed to upgrade its GDP and inflation forecasts due to vaccination rollout and fiscal stimulus.

Currencies and oil

In the currency market, the U.S dollar last traded at 91.865 against a basket of its peers. The index has stayed relatively rangebound this week as it attempts to break the 92.00 level again.

The Japanese yen changed hands at 109.03 per dollar, strengthening from levels near 109.20 reached in previous sessions. The Australian dollar traded flat at $0.7745.

Oil prices rose on Wednesday during Asian trading hours. U.S. crude was up 0.22% at $64.94.

Overnight, prices fell as traders worried about the recovery in fuel demand after major European countries suspended the use of a crucial Covid-19 vaccine from Oxford University and drugmaker AstraZeneca.

Experts have warned that the suspension could have far-reaching consequences.

“Crude oil fell as the market frets over the uneven global recovery in demand,” analysts at ANZ Research said in a morning note. “Growing demand has surfaced in India and the US in recent months, but Europe remains weak.”

“Concerns that demand could fall further have been rising as Europe’s health ministers suspend the rollout of AstraZeneca vaccine amid health concerns,” the analysts added.

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