Asian shares are steady as traders look to the Fed for direction
Tokyo — Asian equities steadied on Wednesday as investors awaited Federal Reserve policy guidance and the outcome of high-level trade talks between the US and China, while drawing relief from Apple’s earnings.
The pound smarted from the previous day’s sharp fall as British MPs rejected most amendments that sought to avoid Britain leaving the EU without a deal, reviving worries of a chaotic withdrawal from the EU.
MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed. Japan’s Nikkei was an outlier, dropping 0.5%.
US S&P 500 e-mini futures tacked on 0.2%, after Apple shares rose 5.7% after the bell as the iPhone maker reported sharp growth in its services business.
Investors were relieved that there was no fresh bad news after the company shocked financial markets at the start of this month when its rare revenue warning sparked fears the US-China trade tensions were taking a toll on the tech sector.
CEO Tim Cook, who is in regular contact with US President Donald Trump, also said trade tension between the US and China is easing in January.
That helped boost optimism around current high-level trade talks between the two countries, even though many investors remain sceptical about whether the economic giants can bridge differences over a number of issues, such as intellectual property rights and technology transfers.
Chinese Vice-Premier Liu He is in Washington this week to meet US officials, including Trump.
US treasury secretary Steve Mnuchin said on Tuesday he expected to see significant progress in talks with Chinese officials and that US charges against telecommunications giant Huawei were a separate issue.
“It seems December was the worst month and since then things might be starting to recover a bit. If we can see more such evidence, market sentiment will be bolstered,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.
“Yet, it’s still not clear how strong any such recovery would be. I would bet markets will be range-bound from here,” he said.
Investors are also looking to the outcome of the Federal Reserve’s rates review later in the day, with expectations policymakers will reinforce their recent dovish stance given signs of a slowdown in the US economy.
US interest rate futures are pricing in virtually no change in official rates in 2019.
Investors are looking for hints from chair Jerome Powell on whether he has any inclination to slow the drawdown of the Fed’s balance sheet by up to $50bn a month.
In the currency market, the British pound was on a slippery slope on renewed concerns over a no-deal Brexit.
British MPs on Tuesday instructed Prime Minister Theresa May to reopen a Brexit treaty with the EU to replace a controversial Irish border arrangement — and promptly received a flat rejection from Brussels.
“The possibilities of no Brexit and of an extension of the Article 50 deadline have fallen. Markets may be under-estimating the chances that we could have a hard Brexit,” said Takafumi Yamawaki, head of Japan forex and rates research at JPMorgan Securities.
The pound, which fell 0.67% on Tuesday, was last up 0.2% at $1.3095, off three-month highs of $1.3218 touched on Friday.
Other major currencies were little moved. The euro changed hands at $1.1438, having risen to a two-week high of $1.14505 on Tuesday.
The dollar was steady against the yen at ¥109.37.
The Australian dollar gained 0.5% to $0.7192 after a reading on domestic inflation proved not to be as weak as bears had bet.
Gold rose 0.15% to eight-and-a-half-month highs of $1,314.3/oz, helped by flight-to-quality bids amid various tensions around the world.
In addition to US-China trade worries, demand for gold has also been driven by concerns about a disruptive Brexit and political turmoil in Venezuela, which could increase Washington’s diplomatic hostilities towards Russia and China.
Oil prices held firm after the US imposed sanctions on state-owned Venezuelan oil company PDVSA, a move likely to reduce the Opec member’s crude exports and relieve some global oversupply worries.
US crude futures rose more than 2% on Tuesday and last stood at $53.46 a barrel, up 0.3%.
Chinese iron ore futures jumped nearly 6%, hitting their daily upside limit, after Brazil’s Vale said it was cutting output following a deadly tailings dam disaster.
The most traded iron ore on the Dalian Commodity Exchange rose to 589 yuan ($87.51) a tonne, the highest since early September 2017.