Stocks rally while bonds slip as investors split on looming Fed rate decision

Asian stocks advanced with European equity-index futures, but bonds tracked a selloff in US Treasuries amid the countdown to the Federal Reserve's policy decision.
Asian stocks advanced with European equity-index futures, but bonds tracked a selloff in US Treasuries amid the countdown to the Federal Reserve's policy decision.PHOTO: REUTERS

HONG KONG (BLOOMBERG, AFP) - Asian stocks advanced with European equity-index futures, following US shares higher, and crude oil extended gains. But bonds tracked a selloff in US Treasuries amid the countdown to the Federal Reserve's policy decision.

Movements in stocks and bonds reflect differing views of whether the Fed will choose to lift interest rates for the first time since 2006 on Thursday, said Kim Youngsung, the head of overseas investment in Seoul at South Korea's Government Employees Pension Service, which manages US$12.7 billion. Traders give a 32 per cent chance of an increase, up from as low as 26 per cent Monday but still well below the 50 per cent odds before China roiled markets by devaluing the yuan last month.

More than half of 111 economists surveyed by Bloomberg, meanhwile, predict no change, while 50 say the rate will be increased by 0.25 percentage point and four see a 1/8 percentage point increase.

"Nobody's sure about the Fed," said Kim. "It's an awkward situation. If they're concerned about the Chinese economy or the global economy, including emerging markets, probably the Fed will delay. Just looking at the US data, it's OK to increase the rate."

The policy-setting Federal Open Market Committee, led by Fed chair Janet Yellen, will meet on the issue Wednesday and Thursday, announcing their decision at 1800 GMT Thursday (2am on Friday in Singapore).

Then Yellen will undertake the delicate challenge of explaining the decision in a press conference, with whatever she says as crucial to markets as the decision itself.

China's stocks surged in the last hour of trading to head for the steepest gain since 2009 as technology shares led a rebound for companies that had been beaten down the most during a US$5 trillion rout. The Shanghai Composite Index jumped 5.9 per cent to 3,180.88 at 2:47 pm. Hong Kong's Hang Seng index rallied 2.6 per cent.

Japan's Nikkei Index rose 0.8 per cent and Australia's S&P/ASX 200 Index jumped 1.6 per cent. Futures signaled the Stoxx Europe 600 Index may extend yesterday's 0.8 per cent gain.

The Straits Times Index led gains in Southeast Asia, trading up 1.2 per cent to 2,875.99 as of 2:54 pm. Singapore's dollar climbed for a seventh straight day, the longest streak since March 2014.

South Korea's Kospi index rose 2 per cent in Seoul, while the won strengthened 0.9 per cent to 1,176.03 per dollar, as a credit-rating upgrade by Standard & Poor's added to investor confidence in the nation's economy. S&P boosted Korea's rating by one level to AA-, the fourth-highest ranking and putting the country on par with China and Japan.

Malaysian markets are closed for a holiday.