Asian stocks steady in runup to Fed, oil declines

ASIAN stocks steadied after four days of losses as investors held back ahead of the US Federal Reserve’s interest rate decision, with markets expecting its first hike since 2023. Oil declined, supporting gains in regional bonds.

MSCI’s regional equities gauge rose 0.1 per cent, with five of the 11 subgroups advancing. Equity-index futures for Wall Street gauges nudged 0.1 per cent higher as OpenAI weighed a new funding round at a US$1.2 trillion valuation.

Among the main moves in markets, S&P 500 futures were little changed as at 10.43 am Tokyo time. Japan’s Topix rose 0.8 per cent, Australia’s S&P/ASX 200 was little changed, Hong Kong’s Hang Seng fell 0.3 per cent and the Shanghai Composite fell 0.3 per cent.

Helping sentiment, Brent dropped 0.4 per cent to just above US$108 a barrel after gaining almost 20 per cent this month. Treasury futures consolidated before the Fed’s announcement on Wednesday (Sep 16), while government bonds opened higher in Australia and New Zealand. 

The rally in energy prices and growing bets on a Fed rate hike had fuelled a bond sell-off, pushing the 10-year Treasury yield as high as 5.04 per cent on Tuesday – the highest in almost two decades. The yield traded around 5 per cent in early Asian trading.

The Fed is in focus after hotter-than-expected core inflation last week and concerns over government budgets bolstered bets that chair Kevin Warsh and his colleagues will tighten monetary policy.

Markets are pricing in a more than 90 per cent chance of a hike. Higher rates would come as surging energy prices threaten to keep inflation elevated, while rising bond yields increase financing costs and add another headwind for equities.

“Given the amount of tightening already factored in, and new chair Warsh’s dislike of ‘forward guidance’, we believe it might be difficult for the Fed to be more ‘hawkish’ than what is baked in,” said Peter Dragicevich, Asia-Pacific currency strategist at Corpay.

“A burst of volatility is likely post the Fed announcement, and we see risks the dollar weakens after the event.”

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In other corners of the market, gold fell for a third consecutive day to trade around US$4,290 an ounce. Higher interest rates typically diminish the appeal of the non-yielding metal. A Bloomberg gauge of the US dollar edged up for a third day.

Elsewhere, Bitcoin extended its slide to trade around US$75,600 as the US Senate blocked a landmark crypto market structure bill.

Central bank decisions remain the main focus this week, with the Fed followed by policy announcements in the UK and Japan that could reshape the monetary policy outlook for the rest of 2026.

A decision by the US central bank to hold rates – or a hike without clear guidance on further increases – may push investors to demand higher long-term yields as protection against inflation, while shorter-dated yields track the Fed’s policy path more closely.

Officials have held their benchmark rate steady in a range of 3.5 to 3.75 per cent since December as a majority of policymakers argued that progress in lowering inflation was being stalled by temporary factors.

“It will be important to hear some of the statements from Kevin Warsh to see what the expectations and the trajectory will be for the remaining few months of 2026,” Ken Wong, an Asia equity portfolio specialist a Eastspring Investment, said on Bloomberg TV. BLOOMBERG