Trade friction and Fed decision are back in focus after Trump-Kim summit
Tokyo — Asian shares slipped back on Wednesday as investors looked to the Federal Reserve policy decision later in the day and any clues it might give on future rate hikes, shifting their focus away from the historic US-North Korea summit in Singapore.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.5%, erasing the slim gains made after Tuesday’s meeting between US President Donald Trump and North Korean leader Kim Jong-un.
Trade friction between the US and China is also back on the radar ahead of Friday, which is Washington has said it will release a list of $50bn worth of Chinese goods that will be subject to a 25% tariff.
“For Asian markets, tariffs will be the biggest concerns in the near term,” said Yukino Yamada, senior strategist at Daiwa Securities.
Japan’s Nikkei eked out gains of 0.25%, following the 0.17% gains in the US S&P 500 the previous day.
On Wall Street, technology shares continued to lead the rally, with the Nasdaq composite index adding 0.57% to finish at a record high of 7,703.
With the US-North Korea summit out of the way, the focus is quickly shifting to the Fed’s two-day policy meeting, which ends on Wednesday.
The Fed is widely expected to raise interest rates for the second time this year, after a move in March, but the bigger question for investors is the outlook for future monetary tightening amid 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,” said Shuji Shirota, head of macroeconomic strategy group at HSBC Securities in Tokyo.
Projections from the Fed’s March meeting suggest a benchmark rate of 2.1% at end of 2018, based on the median forecast of central bank policy makers, which would mean three rate hikes in total this year.
In the currency market, the dollar was relatively well bid ahead of the Fed’s meeting.
The euro traded at $1.1744, off last week’s high of $1.1840 touched on June 7 though it was underpinned by expectations that the European Central Bank may drop a hint about winding up its stimulus after its policy meeting on Thursday.
The dollar stood at ¥110.50, near its highest level in about three weeks.
Some emerging-market currencies stayed under pressure on concern that higher US rates could prompt fund outflows from emerging markets to the US.
The Mexican peso hit a 16-month low of 20.724 peso to the dollar on while the rand dropped to a six-month low of R13.345 to dollar, extending the decline that was triggered by disappointing GDP data last week.
Oil prices dropped after data from the American Petroleum Institute showed a surprise build of 833,000 barrels in US crude stockpiles. Analysts had expected a decline of 2.7-million barrels.
US West Texas Intermediate crude futures traded at $66 a barrel, down 0.5%.
Bitcoin fell to a two-and-a-half-month low of $6,461 on the Bitstamp exchange on Tuesday, on mounting regulatory and security concerns after the weekend hacking of South Korean cryptocurrency exchange Coinrail.
It last traded at $6,573, up 0.2%.