Asia turns cautious as central bank decisions loom

Reuters | | Updated on: Dec 06, 2021

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Markets are currently pricing in only a modest chance of a tightening in December.

Asian share markets paused for breath on Tuesday after a four-week romp higher, as investors took cover ahead of central bank meetings in the United States and Japan later in the week.

Moves were modest with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.07 per cent. Japan's Nikkei dipped 0.1 per cent, though remained near a two-month high.

Risk sentiment remained supported by China's rate cut last week and the prospect of more easing from the European Central Bank in December.

There has been speculation the Bank of Japan might expand its asset buying campaign at a policy meeting on Friday, though recent reports make it less likely.

Even less is expected from the U.S. Federal Reserve when it meets on Tuesday and Wednesday.

Investors are pricing in no chance of a rate hike this week, but could react to how the Fed's statement interprets recent soft U.S. economic data and events in global financial markets.

Markets are currently pricing in only a modest chance of a tightening in December.

"We continue to believe that ongoing uncertainty - and also liquidity concerns at year-end - will keep this extremely risk-adverse Fed on hold until the March 2016 meeting," says Michelle Girard, chief U.S. economist at RBSM.

"After that time, we look for the Fed to raise rates once per quarter."

On Wall Street, the Dow ended on Monday with a minor loss of 0.1 per cent, while the S&P 500 eased 0.2 per cent and the Nasdaq added 0.1 per cent.

After a gain of more than 7 per cent over the past four weeks, MSCI's all-country world index of the equity performance of 46 countries shed 0.1 per cent.

About 170 companies in the benchmark S&P 500 index are expected to report earnings this week, including Apple Inc on Tuesday.

Thomson Reuters data shows third-quarter earnings are expected to decrease 2.8 per cent from a year ago, a slight improvement from the 4.2 per cent decline expected at the beginning of the month.

The U.S. dollar was a shade softer following disappointing data on U.S. new home sales and a dip in Treasury yields. Against a basket of currencies, the dollar was off 0.1 per cent at 96.771.

The euro regained just a little ground to $1.1054, having touched an 11-week trough of $1.0987 on Monday. Against the yen, the dollar eased back to 120.86 from Monday's top around 121.51.

In commodity markets, crude oil stayed under pressure after two straight weeks of losses, on worries that the oversupply in oil products would swell from unseasonably warm weather and the waning maintenance cycle for U.S. refineries.

U.S. crude was quoted down 11 cents at $43.87 a barrel, while Brent eased 2 cents to $47.52 a barrel.

Published on October 27, 2015
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