Marketmind: It’s Fed D-Day

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

Over to you Jay.

Wall Street got the benign U.S. inflation report it was hoping for on Tuesday yet gave back most of its earlier substantial gains, reflecting an underlying nervousness about the U.S. interest rate outlook.

As luck would have it though, investors don’t have long to wait for some clarity – Fed Chair Jerome Powell will take questions from reporters on Wednesday after the Fed delivers what is almost certain to be a 50 basis point rate hike.

This will mark a downshift from the Fed after four consecutive 75 bps increases, and if the trends apparent in November’s inflation figures continue in the months ahead, it may not be long before the tightening cycle winds down completely.

U.S. rates futures market pricing certainly lurched in that direction on Tuesday, but perhaps positioning, profit-taking and options-related activity helped take the fizz out of the equity rally.

US implied interest rates – ‘SOFR’

Still, Wall Street did close in the green, while bond yields, the dollar and key volatility indexes all slumped. If this doesn’t lift Asian stocks on Wednesday, even for a short-lived boost at the open, not much will.

That said, unless and until Powell tells markets what they want to hear, investors might be wary of chasing a rally much higher with the year end and holiday season so close at hand.

The drama and volatility rocking the crypto world right now following FTX founder Sam Bankman-Fried’s arrest and potential charges against Binance may also raise fears of spillovers into traditional markets and push some investors to the sidelines.

Besides the obvious U.S.-led drivers for Asia on Wednesday, there are a few regional economic and policy setpieces that could give local markets some early impetus.

They include: South Korean unemployment, a speech by RBA governor Philip Lowe, Japan’s Tankan surveys and industrial output, and Indian wholesale inflation figures.

Meanwhile, Chinese tech stocks could get a lift on Wednesday after Reuters exclusively reported that Beijing is working on a more than 1 trillion yuan ($143 billion) support package for China’s semiconductor industry, sources said.

Three key developments that could provide more direction to markets on Wednesday:

– U.S. Fed interest rate decision and press conference

– Japan Tankan surveys (Q4)

– RBA chief Philip Lowe speaks

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