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Asian stocks were mostly steady on Wednesday after Wall Street again rose to record highs, although movements were limited as a wait-and-see mood prevailed before the Federal Reserve reveals its monetary policy stance later in the day.
Spreadbetters expected Britain's FTSE to start unchanged and Germany's DAX and France's CAC to each open down about 0.1 per cent.
The caution in financial markets ahead of the Fed has kept some investors from making sharper adjustments to their positions despite potentially higher tensions over the Korean peninsula following hawkish statements from US President Donald Trump overnight.
Fed policy decision
The Fed is due to announce its decision at 1800 GMT on Wednesday and is widely expected to keep rates unchanged after a two-day meeting but could begin paring its bond holdings, with reductions likely to start in coming months.
The financial markets will also sift through the “dot plot" representing Fed policymakers' rate projections for any hints of a rate hike in December.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.05 percent. Japan's Nikkei was effectively flat. Shanghai added 0.3 per cent, while Hong Kong's Hang Seng added 0.2 per cent.
The three major US stock indexes had edged higher on Tuesday, logging record closes, with financial stocks providing the biggest boost.
“A benign outcome for equities would be the Fed going somewhere in between being too passive on reducing its bond holdings and too aggressive in hiking interest rates,” said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo.
“There may be some speculation towards the Fed sounding slightly dovish, but over the last few weeks hawkish rhetoric has come into vogue globally as demonstrated by the Bank of Canada and Bank of England,” he said.
The Canadian central bank hiked interest rates this month and left the door open for more tightening, while a BoE policymaker hinted last week that it might need to raise rates in the coming months.
Expectations for the Fed to raise interest rates in December have risen since.
Rate hike bets
According to CME FedWatch, markets are pricing in a more than 50 per cent chance of a Fed hike in December, up from around 31 per cent as recently as September 8.
The dollar hovered close to an eight-week high against the yen, buoyed with US Treasury yields having risen to one-month highs before the Fed's policy announcement. The greenback was little changed at 111.460 yen after touching 111.880 overnight, its highest since late July.
Trump's comments on N. Korea
Currency markets had a muted reaction to Trump's latest comments on North Korea.
Trump had said in a speech to the UN General Assembly on Tuesday that the United States will be forced to “totally destroy” North Korea unless Pyongyang backs down from its nuclear challenge.
South Korea's KOSPI was down 0.05 per cent and the won was up 0.2 per cent at 1,128.6 to the dollar.
“Trump's comments were actually very strong and the won would have moved more if it were not for the overall cautious mood before the Fed's decision,” said Kim Doo-un, a foreign exchange analyst at Hana Financial Investment Seoul.
For now, broader risk sentiment was yet to be swayed by Trump's comments.
“The market doesn't seem to have any strong risk-off sentiment, even after Trump's comments,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
The euro edged up to touch $1.2019, its highest since September 11. The dollar index against a basket of six major currencies was little changed at 91.747.
Earthquake in Mexico
The Mexican peso pulled back slightly after dropping in response to a strong earthquake that struck central Mexico. The currency stood at 17.8165 pesos per dollar after touching 17.8500 overnight, its weakest in two weeks.
The 10-year Treasury note yield stood close to 2.246 per cent, the one-month peak set the previous day.
In commodities, oil prices rose after Iraq's oil minister said OPEC and other crude producers were considering extending or even deepening a supply cut to curb a global glut, while a report showed a smaller-than-expected increase in US inventories.
Brent crude futures were up 0.3 per cent at $55.30 a barrel and US crude rose 0.6 per cent to $49.76 a barrel.
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