Asia’s shares may extend recent losses on Wednesday after a roller coaster session on Wall Street Tuesday, amid jitters over the U.S. trade war and concerns over the U.S. Federal Reserve’s direction.
While markets widely expect the Fed to raise rates at its meeting Wednesday, its statement will be closely watched for cues on the central bank’s outlook.
Some analysts weren’t overly concerned by the volatile trade on Wall Street Tuesday.
“Market volatility that lacks conviction is generally the norm ahead of an uncertain Fed meeting,” Derek Holt, head of capital markets economics at Scotiabank, said in a note on Tuesday.
That may be especially true after U.S. President Trump took to Twitter for yet another assault on Fed independence, urging the central bank to ignore data he called “meaningless numbers” and maintain rates in their 2.0 percent to 2.25 percent range.
Holt noted that may be self-interest on Trump’s part, with Bloomberg citing its own analysis that interest rate hikes cost the embattled president around US$5 million a year because he took out US$340 million in variable-rate loans from 2012-2015, a time when the Fed was already beginning to exit its ultra-loose policy.
I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018
Housing to sway Fed view?
Despite Trump‘s harrying, Chris Rupkey, chief financial economist at MUFG Union Bank, pointed to improved U.S. housing construction data, with housing permits up 5.0 percent in November as likely to encourage the Fed on its course.
“Housing is one of the most interest-rate sensitive sectors of the economy,” Rupkey said in a note on Tuesday. “The Fed is likely to take today’s news on housing as a sign their monetary policy is not too tight, and vote for a fourth consecutive rate hike this year at tomorrow’s all-important Fed meeting. It is important to stay on a gradual path of rate hikes or they risk telegraphing to the markets and investors that they are worried about the economic outlook.”
Trade war jitters
Markets on Tuesday may have gotten an extra case of jitters after Chinese President Xi Jinping’s speech to mark the 40th anniversary of leader Deng Xiaoping’s campaign to open the mainland’s economy.
In comments which may have implications for negotiations in the U.S. trade war, Xi said that no one could “boss around the Chinese people,” and that China would reform at its own pace, according to a Reuters report.
However, Scotiabank’s Holt said that despite apparent jabs at Trump, including comments about opposing “bullying the weak,” the comments were likely in line with expectations as China wasn’t likely to unilaterally offer giveaways to the U.S.
Holt also noted that if China were to meet “impetuous U.S. demands” to quickly open its economy, it would have a destabilizing effect on Chinese markets.
“That argument isn’t understood by the U.S. administration; nor is the likelihood that such instability would be detrimental to U.S. markets as well,” he said.
March futures for Japan’s Nikkei 225 were up 35 points at 21,040 at 7:38 A.M. SGT according to CME Group, but that was below the index’s previous close at 21,115.45, down 1.82 percent.
Singapore’s Straits Times Index ended Tuesday down 2.21 percent at 3045.54; December futures were at 3053 on Tuesday, while January and February futures were at 3056 and 3058 respectively.
Hong Kong’s Hang Seng Index shed 1.05 percent to 25,814.25 on Tuesday, while China’s CSI 300 index was off 1.04 percent to 3128.427.
Malaysia’s KLCI shed 0.38 percent to end at 1635.31 on Tuesday, while Indonesia’s IDX Composite edged down 0.12 percent to 6081.87.
The Dow Jones Industrial Average ended Tuesday up 0.35 percent at 23,675.64 after a volatile session, the Nasdaq Composite was up 0.45 percent at 6783.912 and the S&P 500 was nearly flat at 2546.16 after setting a 52-week low intraday. Futures for the three indexes were slightly higher in early trade.
Nymex WTI crude oil futures for January were down 0.06 percent at US$46.21 a barrel at 7:12 A.M. SGT after tumbling on Tuesday to levels not touched in at least 15 months, while ICE Brent crude futures for February were off 5.62 percent at US$56.26 a barrel at 6:59 A.M. SGT, according to Bloomberg data.