Asian equities inch higher as trade war fears recede

Fed funds rates futures implied traders are fully pricing in a rate hike on Wednesday, and another 85% chance the Fed would raise rates again in December.

“The focus will be on whether the Fed will indicate its tightening is coming to an end. The Fed may not do so today but I expect markets will soon start looking to that scenario,” said Akira Takei, bond fund manager at Asset Management One.

The Fed’s past policy statements have shown that policy makers expect 2.9%, about 100 basis points above the current levels, as an appropriate level in the longer run.

That means the Fed would hit that level with only two more rate hikes, if it will bump up rates twice more in 2018 as widely expected.

Takei of Asset Management One noted that there are already signs that higher rates are starting to hurt the US economy, such as a rise in delinquencies of consumer loans, adding the dollar’s softness could be an early sign of growing focus over an end to the US tightening cycle.

The dollar’s index against a basket of major currencies stood at 94.169, near Friday’s 93.808, a two-and-a-half-month low.

The euro traded at $1.1765, not far from three-month high of $1.18155 touched on Monday.

Many emerging-market currencies, such as the Turkish lira and the rand, also kept some distances from lows hit in August.

Bucking the trend of greenback weakness, the yen changed hands at ¥112.92 to the dollar, near six-month lows of ¥113.18 set in mid-July.

Oil prices were supported on concerns of tight supply on US sanctions on Iran’s oil exports, quickly paring early losses following data showing US crude stocks rose unexpectedly last week and renewed call from Trump on Opec to boost crude output.

“Saudi Arabia appears to have changed its stance. It seems to be intended to maintain high prices. It could increase output to deal with decline in Iran’s production but it is unlikely to step up output to bring down prices,” said Tatsufumi Okoshi, senior commodity economist at Nomura.

Benchmark Brent futures hit $82.55 a barrel, its highest since November 10 2014, on Tuesday and last stood at $81.85, almost flat on the day.

Brent is on course for its fifth consecutive quarterly increase, the longest such stretch for the global benchmark since early 2007, when a six-quarter run led to a record-high of $147.50 a barrel.

US crude futures ticked down 0.2% to $72.16 a barrel after hitting an 11-week high of $72.78 the previous day.

Reuters