Asian stocks stabilized after four days of losses, as investors refrained from taking large positions ahead of the Federal Reserve's interest rate decision, with markets expecting the first increase since 2023. Oil prices fell, supporting bond gains in the region.
The MSCI regional stock index rose 0.1%, with five of its 11 sub-sectors advancing. Wall Street stock index futures also rose 0.1%, as OpenAI considers a new funding round at a valuation of $1.2 trillion.
A 0.4% decline in Brent crude to just over $108 a barrel supported sentiment, after it had risen nearly 20% this month. Treasury futures were steady ahead of the Federal Reserve's interest rate decision on Wednesday, while government bonds opened higher in Australia and New Zealand.
Rising energy prices and increasing bets on a Federal Reserve interest rate hike fueled a sell-off in bonds, pushing the 10-year Treasury yield to a high of 5.04% on Tuesday, its highest level in nearly two decades. The yield traded near 5.00% in early Asian trading.
Awaiting the Federal Reserve's decision
Attention is focused on the Federal Reserve after core inflation, which came in higher than expected last week, and concerns about government budgets, boosted bets that President Kevin Warsh and his colleagues will tighten monetary policy.
Markets are pricing in a greater than 90% probability of an interest rate hike. This would come at a time when rising energy prices threaten to keep inflation high, while higher bond yields increase borrowing costs and add another headwind to equities.
Peter Dragicevic, Asia-Pacific currency strategist at Corpay Inc., said that given the amount of tightening that has already been priced in, and the new president's dislike of forward guidance, we think it may be difficult for the Fed to be more 'tight' than the market has already priced in.
He added: A wave of volatility is likely to occur after the Federal Reserve announcement, and we see a risk that the dollar will weaken after the event.
Gold and Bitcoin under pressure
Elsewhere in the market, gold fell for the third consecutive day, trading near $4,290 an ounce. Higher interest rates typically reduce the appeal of the non-yielding metal. The Bloomberg Dollar Index rose for the third day.
Bitcoin continued its decline to trade near $75,600, after the US Senate blocked a landmark bill to regulate the structure of the cryptocurrency market.
Central bank decisions remain the main focus this week, with the Federal Reserve's decision followed by monetary policy announcements in the UK and Japan, which could reshape monetary policy expectations for the remainder of 2026.
The US central bank’s decision to keep interest rates unchanged, or to raise them without providing clear guidance on further increases, may prompt investors to demand higher returns on long-term bonds to protect against inflation, while shorter-term yields move more closely with the Fed’s policy path.
Officials have kept the benchmark interest rate steady in a range of 3.5% to 3.75% since December, as most policymakers believe that progress in reducing inflation is being hampered by temporary factors.
Ken Wong, an Asian equity portfolio specialist at Eastspring Investment, told Bloomberg Television: “It will be important to listen to Kevin Warsh’s comments to understand the outlook and trajectory over the remaining few months of 2026.”
