Asia share markets tense for Fed call, oil slide boosts bonds
SYDNEY (Reuters) - Asian share markets played second string to bonds on Wednesday as a spectacular fall in the price of oil spurred speculation the US Federal Reserve might be done with tightening after its policy meeting later in the session.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4 percent, while Shanghai blue chips were flat.
Japan’s Nikkei steadied after an early dip and E-Mini futures for the S&P 500 added 0.4 percent.
Oil had stolen the show as a supply glut saw Brent shed almost 6 percent overnight. U.S. crude was last down another 13 cents at $46.11 a barrel, while Brent recouped just 4 cents to $56.30.
Brent’s 35 percent plunge since October is sending a disinflationary pulse through the world at a time when trade and economic activity are already cooling.
That has only added to pressure on the Fed to abandon its commitment to yet more hikes.
US President Donald Trump on Tuesday warned the central bank not to “make yet another mistake”, while a Wall Street Journal editorial called for a pause.
So far, the futures market is sticking with a two-in-three chance of a rate increase on Wednesday.
“Despite recent market volatility we think that it is still more likely than not that the Fed will raise rates,” said ANZ senior economist Tom Kenny.
“But we lean slightly toward the Fed removing the reference to the need for ‘further gradual increases’.”
He also expects the median Fed forecast, or dot plots, to drop to two rate rises for next year, from the three projected back in September. The market is well ahead of that and pricing in less than one rise in 2019.
Talk of a dovish turn helped Wall Street steady and the Dow ended Tuesday up 0.35 percent. The S&P 500 edged up 0.01 percent and the Nasdaq 0.45 percent.