Asian stocks stutter as traders prepare for Fed decision

HONG KONG – Asian stocks struggled on Sept 16 as investors prepare for an expected interest rate hike by the US Federal Reserve later in the day, though there was a little support from a dip in oil prices following their recent run-up.

With inflation still running well above the central bank’s target and the Middle East crisis keeping crude above US$100 a barrel, monetary policymakers are widely tipped to lift borrowing costs for the first time since 2023.

That 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, and there is growing speculation that officials could announce another lift before the end of the year.

Fed boss Kevin Warsh in August 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.

Since then, data showing strong jobs creation and stubbornly high inflation have cemented expectations, with traders pricing a more than 90 per cent chance that board members choose to tighten monetary policy.

Expectations that inflation will run hot for an extended time helped push up 10-year US Treasury yields this week above 5 per cent 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.”

After a sell-off on Wall Street and in Europe, Asian equities staggered between gains and losses on Sept 16, with tech firms still coming to terms with a call among top AI leaders for a slowdown in development in the sector.

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

The Fed announcement will be followed on Sept 18 by the Bank of Japan, which is also expected to hike owing to rising inflation as well as the need to maintain support for the yen.

The currency has picked up against the dollar in September – having hit a 40-year low in July – helped by a historic joint Japan-US intervention.

But observers say it could benefit in the future from Fed struggles to rein in prices.

“Currency markets are still pricing in a consensus that US inflation will ultimately return to 2 per cent,” said Invesco’s David Chao. “It is very possible that US inflation instead settles closer to 3 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 Sept 17 as Britain’s economy struggles for growth.

A drop in oil prices on Sept 16 provided some optimism, though both main contracts remain well above US$100 a barrel as the US and Iran remain at loggerheads and Saudi Arabia keeps a key pipeline closed following attacks.

Also in view is a planned summit between US President Donald Trump and Chinese counterpart Xi Jinping, with reports 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. AFP