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Asian Stocks Up, Focus Squarely on Fed Policy Decision

Stock Markets Jan 26, 2022 02:36
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By Gina Lee – Asia Pacific stocks were mostly up on Wednesday morning steadying after U.S. counterparts ended another volatile session. However, investors are on edge ahead of the U.S. Federal Reserve’s latest policy decision.

Japan’s Nikkei 225 fell 0.46% by 9:06 PM ET (2:06 AM GMT) while South Korea’s KOSPI was up 0.28%.

Hong Kong’s Hang Seng rose 0.76%.

China’s Shanghai Composite was up 0.34% and the Shenzhen Component rose 0.88%.

Australian markets are closed for a holiday.

The S&P 500 closed near its lowest level since October 2021 on Tuesday, while the Nasdaq 100 underperformed.

The focus is squarely on the Fed’s policy decision, due to be handed down later in the day. The decision will be scrutinized for clues on an interest rate hike and asset tapering timetable, but it is widely expected that the former will begin in March 2022.

While the Fed could spur more selling if it takes a hawkish tone, Chairman Jerome Powell will likely say policy is data-dependent and supply chains are improving while indicating that inflation could be peaking, Optimal Capital portfolio strategist Frances Stacy told Bloomberg.

“I think what that’s going to do is potentially reassure markets that the Fed put is ready, willing and able... that could cause some serious enthusiasm and a short squeeze,” she added.

Other investors took a different view.

“A moderately hawkish Powell would be dovish in market terms. If he says that the Fed is committed to getting inflation on track and is still hopeful that a couple of hikes combined with some quantitative tightening will be enough, that is dovish by market pricing," Standard Chartered PLC global head of G-10 FX research Steven Englander said in a note.

However, global shares are already down over 7% in 2022 to date, and the prospect of central banks withdrawing stimulus, with the economic recovery from COVID-19 starting to slow down, could mean more market volatility.

The risk of a “growth shock” to equities is increasing, with the International Monetary Fund cutting its global economic expansion forecast for 2022 due to weaker prospects for the U.S. and China along with persistent inflation, Goldman Sachs Group Inc. strategists warned.

However, Citigroup Inc. strategist Ed Acton took a more positive tone.

“For the Fed, the current risk-asset drawdown certainly makes their job more difficult, but we don’t see the level of financial conditions tightening as commensurate with a dovish message. Instead, the Fed may seek to underline the current inflation risks as a ‘constraint’ on monetary policy going forward,” he said in a note.

The Bank of Canada also hands down its policy decision later in the day, with the South African Reserve Bank following a day later.

Asian Stocks Up, Focus Squarely on Fed Policy Decision

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