Asian stocks stutter, rand steady and oil softer as markets brace for US Fed decision - IOL

Following a sell-off on Wall Street and in Europe, Asian equities staggered between gains and losses on Wednesday morning.

Asian stocks struggled on Wednesday as investors braced for an anticipated interest rate hike by the Federal Reserve, which will announce its decision later in the day.

Brent crude remained elevated at $107.85 per barrel on Tuesday morning, having eased 0.83% overnight, with the Middle East war and associated supply risk continuing to put upward pressure on prices.

The rand was holding steady, gaining marginally against the US dollar at R16.24, despite the pre-Fed risk-off tone of the markets and the pull of near 5% US Treasury yields.

With inflation running well above the US central bank's target and oil holding well above $100, markets are pricing in close to a 90% chance of a 25 basis-point hike, Investec reports. This will be the first increase since 2023.

This situation has dealt a heavy blow to a rally in global equities that saw several markets hit record highs in the first half of the year, AFP reports, and there is growing speculation that officials could announce yet another hike before the end of the year.

Expectations are leaning towards the South African Reserve Bank's MPC announcing a 25 basis point rate hike at the next meeting on September 23.

Fed boss Kevin Warsh last month ramped up bets on an increase when he delivered what was considered a hawkish speech at a gathering of central bankers and economists at Jackson Hole, Wyoming.

Expectations that inflation will run hot for an extended time helped push up 10-year US Treasury yields this week above five percent and to a level not seen since 2007 before the global financial crisis kicked in.

"For traders, the most interesting part of the statement will be the vote, specifically how many of the 12 members (if any) vote to leave interest rates unchanged," wrote Matt Weller at FOREX.com.

"If there are three or more dissents, or if Chairman Warsh himself dissents (unlikely), then even an immediate interest rate hike may be seen as a potential one-off 'insurance hike', rather than necessarily the start of a new rate hiking cycle.

"Conversely, a unanimous decision to raise rates makes another interest rate hike this year more likely."

Following a sell-off on Wall Street and in Europe, Asian equities staggered between gains and losses on Wednesday morning, with tech firms still coming to terms with a call among top AI leaders for a slowdown in development in the sector, AFP reported.

Tokyo, Shanghai, Sydney and Manila fell, while Hong Kong, Singapore, Wellington, Taipei and Jakarta fell. Seoul was flat.

"Currency markets are still pricing in a consensus that US inflation will ultimately return to two per cent," said Invesco's David Chao.

"It is very possible that US inflation instead settles closer to three per cent.

"In such an environment where the central bank is seen as less credible in reigning in inflation, investors may become less willing to hold US dollars simply because US interest rates are higher."

The Bank of England is forecast to maintain its benchmark rate on Thursday as the UK economy struggles to grow.

Also on the radar is a planned summit between US President Donald Trump and Chinese counterpart Xi Jinping, with reports stating that they could agree to some tariff reductions.

Bloomberg said the two sides were looking at reductions on some goods including US energy and agricultural products, suggesting they will extend a one-year truce agreed in 2025 following Trump's global tariff blitz.