Asian Shares Jitter as Investors Anticipate Fed Decision
Asian shares fluctuated on Monday as investors placed significant bets on a rate cut from the Federal Reserve this week. However, the upcoming meeting may prove to be one of the most contentious in recent history, with some policymakers openly opposing an easing. Markets indicate approximately an 85 percent likelihood of a quarter-point reduction in the funds rate, which currently stands between 3.75 percent and 4.0 percent. Therefore, a decision to maintain the rate would be a significant surprise. A poll of 108 analysts revealed that only 19 predicted no change, while the majority anticipated a cut. “We expect at least two dissents in favour of no action and that only a slim majority of the 19 FOMC participants will indicate in their updated dots that a December cut was appropriate,” wrote Michael Feroli. The Federal Open Market Committee has not experienced three or more dissents at a meeting since 2019, a rarity that has occurred only nine times since 1990. Feroli also believes the Fed will implement a cut in January as a safeguard against a prolonged decline in the labor market, before entering a prolonged period of policy stability. Markets currently perceive merely a 24 percent likelihood of a January move, with additional easing not fully accounted for until July.
Central banks in Canada, Switzerland, and Australia are scheduled to meet this week, and all are anticipated to maintain their current positions. The Swiss National Bank may consider easing once more to counterbalance the strength of its franc; however, it is already at 0 percent and hesitant to adopt negative rates. A series of robust economic indicators has prompted markets to relinquish any expectations of further easing from the Reserve Bank of Australia, with some even factoring in a potential rate increase for late 2026. Expectations for additional Fed stimulus have bolstered equities in recent weeks; however, the potential for a hawkish outlook on Wednesday has led to more cautious trading. S&P 500 futures and Nasdaq futures exhibited minimal movement in early trading. Earnings this week from Oracle and Broadcom will gauge the enthusiasm for AI-related ventures, while Costco will shed light on consumer demand. In Asia, Japan’s Nikkei experienced a decline of 0.3 per cent, following a modest gain of 0.5 per cent the previous week. South Korean stocks declined by 0.3 per cent, following a significant increase of 4.4 per cent last week, which was driven by the confirmation of a reduced U.S. tariff on its exports.
MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a slight decline of 0.1 per cent in subdued trading conditions. Chinese blue chips are expected to draw insights from the November trade data released this morning, which will provide new evidence regarding the performance of exports amid the ongoing tariffs. In bond markets, longer-dated Treasuries face pressure due to the potential for hawkish guidance from the Fed, even if a cut is agreed upon this week. Concerns have been raised that President Donald Trump’s criticisms of the Federal Reserve’s independence might result in interest rates being set too low, potentially fueling inflation in the long term. On Monday, 10-year yields increased slightly to 4.146 percent, having risen by 9 basis points the previous week. The increase in yields has contributed to the dollar’s stabilization following two weeks of decline, with its index remaining at 99.013. It remained steady at 155.37 yen, following a dip to a three-week low of 154.34 on Friday. The euro remained stable at $1.1638, slightly below its recent seven-week peak of $1.1682.
Commodities have been largely supported by bets on increased U.S. policy stimulus, with copper hitting all-time highs due to a combination of supply concerns and demand stemming from AI-related infrastructure investment. Gold was priced at $4,202 an ounce, having reached a high of $4,259 on Friday, while silver remained close to its all-time peak. Oil prices received a boost from the potential for lower interest rates, alongside geopolitical uncertainties that may restrict supplies from Russia and Venezuela. Brent increased by 0.2 per cent to $63.85 a barrel, while U.S. crude also rose by 0.2 per cent to $60.18 per barrel.
