Sep 18, 2019: Asian equities were mixed Wednesday, with attention turning to the Federal Reserve's key policy decision later in the day, while investors remain on alert for developments in the Middle East after the attack on Saudi oil facilities rocked markets.
News that Riyadh will get its two major installations back online earlier than expected sent crude prices tumbling Tuesday, and they fell further in Asia, though analysts said there was nervousness on trading floors about oil security in the future.
With fears of a military retaliation against Iran — who are accused of being behind the strikes — low for now, focus is now on the Fed, which is expected to cut interest rates while its post-meeting statement will be closely followed for clues about future plans.
Global markets have spent most of this month rising on bets that central banks, led by the Fed, will move to a softer monetary policy to offset a slowdown in most economies exacerbated by the China-US trade war.
“A rate cut of 25 basis points is universally regarded as a done deal by global markets,” said OANDA senior market analyst Jeffrey Halley.
“What will be closely watched is the press conference 30 minutes later, where we will gain more clarity as to whether the Fed has moved to an explicit easing bias.
“The likelihood of a shift from neutral to easing will be high as the (policy board) will not be able to ignore the storm cloud around the rest of the world that must eventually start raining on the United States.”
Oxford Economics estimates the Fed will cut three more times this year, which would erase all its 2018 rate hikes.
The Fed has been forced to pump more than $100 billion into US financial markets owing to a tightening of liquidity that had seen short-term lending rates spike for companies.
– Eyes on Pompeo –
Equity traders shifted cautiously with Asian markets struggling for traction.
Hong Kong edged up 0.1 percent after two days of steep losses that have been made worse by worries about long-running protests in the city. Shanghai was 0.4 percent higher and Tokyo ended the morning 0.1 percent higher.
Seoul added 0.4 percent and Taipei rose 0.3 percent but Sydney slipped 0.2 percent and Singapore fell 0.1 percent, while Wellington and Manila were also down.
Dealers are being given some optimism by the fact the US and China are about to restart trade negotiations next month, with a delegation from Beijing reportedly visiting Washington this week for preparatory talks.
However, there are fresh worries about the impact on the already stuttering world economy from the Saudi oil attacks on Saturday.
While the resumption of output from the world's biggest exporter provided some much-needed relief, observers said long-term energy security is now a concern.
“Restoring production may placate global investors' immediate economic concerns, but that's only half the problem as the attacks exposed some significant vulnerabilities,” said Stephen Innes at AxiTrader.
“None more so than just how inadequately prepared the markets are for disruptions of this magnitude which suggest that the supply risk premium could stick around well after production is restored.”
Eyes are on US Secretary of State Mike Pompeo, who departed for Saudi Arabia Tuesday to discuss possible retaliation, while Vice President Mike Pence said: “As the president said, we don't want war with anybody but the United States is prepared.”
A US official, speaking on condition of anonymity, told AFP the White House has concluded the attack — claimed by Huthi rebels in Yemen — involved cruise missiles from Iran and that evidence would be presented at the UN General Assembly next week.
– Key figures around 0230 GMT –
- Tokyo – Nikkei 225: UP 0.1 percent at 22,012.72 (break)
- Hong Kong – Hang Seng: UP 0.1 percent at 26,828.10
- Shanghai – Composite: UP 0.4 percent at 2,989.10
- West Texas Intermediate: DOWN 25 cents at $59.09 per barrel
- Brent North Sea crude: DOWN eight cents at $64.47 per barrel
- Euro/dollar: DOWN at $1.1068 from $1.1071 at 2100 GMT
- Dollar/yen: UP at 108.18 yen from 108.13 yen
- Pound/dollar: DOWN at $1.2487 from $1.2497
- Euro/pound: UP at 88.63 pence from 88.57 pence
- New York – Dow: UP 0.1 percent at 27,110.80 (close)
- London – FTSE 100: FLAT at 7,320.40 (close)