Asian shares were mostly higher in cautious trading Tuesday as the Federal Reserve and other central banks prepared for the year’s final barrage of interest rate hikes.
Markets have struggled this year thanks to high inflation and the interest rate hikes engineered to combat it. Higher rates slow business activity by design but also risk causing a recession if they go too high, all while dragging down prices of investments.
The next big milestone comes with Tuesday’s release of the latest update on inflation at the consumer level. Economists have forecast that inflation slowed to 7.3% last month from 7.7% in October.
Policymakers at the Federal Reserve begin a meeting Tuesday. When it wraps up Wednesday, investors expect the central bank to announce its last rate hike of the year.
Other central banks around the world, including the European Central Bank, are also likely to raise their own rates by half a percentage point this week.
Germany’s DAX edged up 0.2% to 14,330.18 early Tuesday, while the CAC 40 in Paris added less than 0.1%, to 6.653.81. London’s FTSE 100 edged up 3 points to 7,449.05.
“It’s been a do-nothing day as investors take stock before the onslaught of a series of high-risk events,” Stephen Innes of SPI Asset Management said in a commentary.
In Asian trading, Tokyo’s Nikkei 225 rose 0.4% to 27,961.66 while the Hang Seng in Hong Kong gained 0.5% to 19,559.93. Australia’s S&P/ASX 200 picked up 0.3% to 7,203.30.
In Seoul, the Kospi shed 0.3% to 2,366.89. The Shanghai Composite index was flat at 3,179.71. Shares fell in India and Taiwan but rose in Singapore and Bangkok.
The futures for the Dow industrials and S&P 500 were little changed at less than 0.1% higher.
The Fed has hinted it will dial down the size of its rate hikes, leading to expectations for a more modest increase of 0.50 percentage points Wednesday after four straight mega-hikes of 0.75 percentage points. Each of those was triple the Fed’s usual move, and they lifted the central bank’s key overnight rate to a range of 3.75% to 4%. It started the year at virtually zero.
Economists at Goldman Sachs expect Fed policy makers on Wednesday to signal their median expectation is for rates eventually to hit a range of 5% to 5.25%.
Even if inflation is waning, the global economy still faces threats from the rate increases already pushed through. The housing industry and other businesses that rely on low interest rates have shown particular weakness, and worries are rising about the strength of corporate profits broadly.
Besides raising short-term rates, the Fed is also making other moves with its vast trove of bond investments that should effectively allow longer-term yields to rise.
On Wall Street on Monday, the S&P 500 rallied 1.4% while the Dow Jones Industrial Average added 1.6%. The Nasdaq climbed 1.3% and the Russell 2000 gained 1.2%.
The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, rose to 3.61% from 3.59% late Friday. The two-year yield, which tends to more closely track expectations for the Fed, rose to 4.39% from 4.34%.
Energy producers rose Monday after the price of U.S. oil settled 3% higher. Exxon Mobil rose 2.5%.
U.S. benchmark crude added 97 cents to $74.14 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the basis for pricing for international trading, picked up $1.10 to $79.09 per barrel.
Last week, crude prices scraped their lowest levels of the year on worries about a weakening global economy, which would mean less demand for energy.
In currency dealings, the dollar was flat at 137.68 Japanese yen. The euro climbed to $1.0549 from $1.0534.
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