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- Asian stocks struggled to hold early gains on Wednesday as several indicators screamed caution, and a relapse in oil prices made sentiment even more fragile ahead of a Federal Reserve policy statement due later. With Chinese stocks showing fresh signs of weakness after a 6.4 percent tumble in the previous session, Asia failed to draw much support from an overnight bounce on Wall Street, where upbeat earnings results and a bounce in crude oil pushed up the Dow 1.8 percent and the S&P 500 1.4 percent. Benchmark stock indexes in China were trading between 1 to 2 percent lower in opening trades. China’s markets have slumped about 22 percent so far this year, knocking nearly 12 trillion yuan ($1.8 trillion) off the value of the indexes as of Tuesday. Risk appetite was also subdued as crude oil prices resumed falling and ahead of the closely-watched Fed policy meeting outcome later in the day. Correlations between oil and U.S. stocks have risen sharply to 0.9 percent.
Prospects of the two-day Fed meeting concluding with a dovish statement nudged U.S. Treasury yields down. The benchmark 10-year Treasury note yield dipped about 2 basis points overnight. Futures were implying roughly two more rate hikes this year, lesser than the Fed’s own projections.
- The U.S. dollar kept to the sidelines early on Wednesday with the market waiting for a interest rate steer from the Federal Reserve, while a fleeting rebound in oil prices sparked a short-covering rally in currencies like the Canadian dollar. The greenback managed to eke out a slim gain on the yen, which softened broadly as a rally on Wall Street dampened demand for the safe-haven Japanese currency. Wednesday’s main focus will be the outcome of the Fed’s Jan 26-27 policy review. While the central bank is almost certain to keep interest rates unchanged, investors are keen to see its latest economic outlook given the turbulent start to global financial markets this year. Yet, with Fed fund futures implying just one rate hike this year, the risk is that anything the Fed says may be interpreted as hawkish. That could see the greenback bounce back, some traders said. The Reserve Bank of New Zealand (RBNZ) meets on Thursday and the Bank of Japan (BOJ) on Friday.
- U.S. consumer confidence improved in January despite a stock market rout and house prices accelerated in November, suggesting underlying strength in the economy despite a sharp growth slowdown in recent months. The Conference Board said its consumer confidence index rose to 98.1 this month from 96.3 in December as households shrugged off January’s stock market sell-off and focused instead on a strengthening labor market. Consumers remained optimistic about the labor market this month. The share of households anticipating more jobs in the months ahead increased 13.2 percent from 12.4 percent in December, while the proportion of those anticipating fewer jobs fell slightly. Though the share of consumers expecting an increase in incomes rose to 18.1 percent from 16.3 percent last month, there was a slight increase in those expecting an income reduction. Labor market strength, marked by a 5% unemployment rate, prompted the Fed to raise interest rates in December for the first time in nearly a decade. The U.S. central bank is due to announce its latest rate decision at 19:00 GMT on Wednesday after a two-day policy meeting. A separate report showed the S&P/Case Shiller composite home price index of 20 metropolitan areas rose 5.8 percent in the year to November, adding to a 5.5 percent increase in October. House prices rose 0.9 percent in November from October on a seasonally adjusted basis. Home prices in Dallas, Denver and Portland, Oregon are now at record levels, the report showed.
Crude oil futures dropped around 2 percent on Wednesday, heading back towards $30 a barrel as profit-taking wiped out a chunk of the gains notched up in the previous session on hopes for output cuts. Prices were also dampened by a bigger-than-expected build in U.S. crude inventory and worries about the economy in China, the world’s second-largest oil consumer. U.S. crude stocks rose by 11.4 million barrels in the week to Jan. 22 to 496.6 million, compared with analyst expectations for an increase of 3.3 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 664,000 barrels, data from industry group the American Petroleum Institute showed on Tuesday. U.S. and Brent crude prices rallied on Tuesday after the oil minister of Iraq said that OPEC kingpin Saudi Arabia and top non-OPEC producer Russia were showing signs of flexibility about agreeing to tackle an oil glut that has pushed prices to 12-year lows. Meanwhile, Venezuela’s oil minister will tour OPEC and non-OPEC countries in a bid to drum up support for joint action to stem the tumble in crude prices, President Nicolas Maduro announced on Tuesday night. Asian stocks were subdued on Wednesday as a wait-and-see mood prevailed ahead of a Federal Reserve policy statement due later in the day.