Asian shares slipped on Wednesday as investors prepared for a Federal Reserve policy decision later in the day. They also awaited any further clues that the Fed may give on future rate hikes that could change global economic growth and corporate earnings.
Trade frictions between the United States and China were also being watched out ahead of Friday. Washington has already said that it will release a list of some $50 billion worth of Chinese goods that will be subject to a 25 percent tariff.
Spread-betters are anticipating all major European indexes including Britain’s FTSE, France’s CAC, and Germany’s Dax to begin the session flat or a bit higher.
However, MSCI’s broadest index of Asia-Pacific shares excluding Japan slipped 0.5 percent, paring the slim gains made after Tuesday’s meeting between North Korean leader Kim Jong-Un and US President Donald Trump.
“For Asian markets, tariffs will be the biggest concerns in the near term,” stated Yukino Yamada, who is a senior strategist at Daiwa Securities.
As if it were a reminder of the possible damage that a full-blown trade dispute could cause, Hong Kong-listed shares of Chinese telecommunications giant ZTE Corp plummeted as much as 41.5 percent. It erased about $3 billion of its market value, and then it resumed trade after it agreed to pay up to $1.4 billion in penalties to the US government.
Its Shenzhen shares dropped to their 10 percent limit. The CSI300 index of mainland shares dipped 0.7 percent.
Japan’s Nikkei managed to gain 0.5 percent, attributed to the slip in the yen and after a 0.17 percent gain in the US S&P 500 during the previous day.
Meanwhile, on Wall Street, tech shares continued to lead the rally, with the Nasdaq Composite gaining 0.57 percent to end at record high of 7,703.
Trump and Kim pledged in a joint statement to work toward the “denuclearization” of the Korean Peninsula, though they didn’t disclose any further details.
Now that the summit is finished, the market focus is rapidly moving to the Fed’s two-day policy meeting ending on Wednesday. The market is also shifting attention to the European Central Bank’s decision on Thursday.
The Fed is broadly expected to increase interest rates for the second time this year after it moved in March. On the other hand, the bigger question for investors is the outlook for the future monetary policy tightening in the midst of an ongoing economic expansion.
“With a rate hike almost fully priced in, the focus is on how many times the Fed will raise rates this year and next and how much beyond the levels it considers as neutral to the economy, or what they call the longer-run rates,” stated Shuji Shirota, who is the head of macro-economic strategy group at HSBC Securities in Tokyo.
Projection from the Fed’s March meeting suggest a benchmark rate of 2.1 percent at end of 2018, as indicated on the median forecast of central bank policymakers, which would suggest three rate hikes in total for this year.
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