Asian markets weaker on Fed rate hike expectation, Chinese stimulus speculation

July 26, 2023 (MLN): Asian markets were trading mostly weaker on Wednesday ahead of the U.S. Federal Reserve's expected interest rate rise to be delivered later in the day, as investors also weighed the likelihood of a Chinese economic stimulus package, as Reuters reported. 

MSCI's broadest index of Asia-Pacific shares outside Japan was flat after U.S. stocks ended the previous session with mild gains. The index is up 3.8% so far this month.

The yield on benchmark 10-year Treasury notes rose to 3.8924%, compared with its U.S. close of 3.912% on Tuesday.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.8848% compared with a U.S. close of 4.893%.

Australia was the only major market across the Asia Pacific region to see shares rise, with the S&P/ASX 200 index up 0.81%. Japan's Nikkei stock index was off 0.12%.

In Hong Kong, the Hang Seng index was down 0.54% and China's blue-chip CSI300 index was off 0.13% in early trade.

Positive sentiment returned to China's market on Tuesday when the CSI 300 Index snapped a six-day losing streak by closing up nearly 3% to record the best day since last November.

On Wall Street, the three main indices closed higher, led by gains in shares of technology, materials, and communication services companies.

The Dow Jones Industrial Average rose 0.08% to 35,438.07, the S&P 500 gained 0.28% to 4,567.46 and the Nasdaq Composite added 0.61% to 14,144.56.

The Fed's July decision will be announced later on Wednesday following its two-day meeting. The benchmark rate is expected to be lifted to a range between 5.25% and 5.5%.

"Global equity markets traded positively ahead of the (Fed) announcement where it is widely expected to hike 25 basis points," ANZ economists wrote in a note Wednesday.

"A follow-up hike is partially priced in over the second half, but we think this will be the last hike this cycle," the economists said, adding ANZ did not expect a U.S. rate cut until the second quarter of 2024.

The prospect of a China stimulus package is still being mulled by investors after the country's top leaders this week flagged policy support for the COVID-ravaged economy.

No details were given on a potential stimulus, but state media reported China would implement its macro adjustments "in a precise and forceful manner".

"There is discussion among investors as to whether China could implement an old-school stimulus in the property sector and look to support developers, which is positive for steel consumption and producers," said Karen Jorritsma, head of equities in Australia at RBC Capital Markets.

"Or whether it will be a consumer-led stimulus to boost consumption and that is not as positive for the names of the big resources. But overall in markets confidence has improved, people are starting to look through the noise and that is a positive," she said.

The dollar rose 0.02% against the yen to 140.93. It is still some distance from its high this year of 145.07 on June 30.

The euro was flat at $1.1048, having gained 1.26% in a month. The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 101.32.

U.S. crude dipped 0.49% to $79.24 a barrel. Brent crude was down 0.48% at $83.24 per barrel.

Gold was slightly higher, with spot gold trading at $1964.9188 per ounce.

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