Asian markets turn cautious ahead of US Federal Reserve decision

Asian markets traded cautiously on September 16 as investors awaited a closely watched US Federal Reserve decision on interest rates.

HONG KONG: Asian shares made tentative gains on Wednesday as investors held back from making major moves ahead of a crucial US Federal Reserve interest-rate decision that could set the direction for global markets.

Asian markets were mixed to modestly higher during September 16 trading, with the MSCI index of Asia-Pacific shares outside Japan fluctuating between gains and losses before moving higher. Investors remained focused on US interest rates, elevated Treasury yields and oil prices.

Why investors are watching the Fed

The Federal Reserve is due to announce its latest policy decision later on Wednesday, with markets pricing in a more than 90 per cent probability of a 25-basis-point rate increase.

Such a move would be the Fed’s first interest-rate increase since 2023 and would lift its benchmark rate from the current 3.5 to 3.75 per cent range.

Investors will also closely follow Fed Chair Kevin Warsh’s remarks for clues about whether policymakers expect further tightening as they respond to persistent inflation pressures.

Also read: UAE’s $3 billion Boring Company bet could transform underground travel

Asian stocks make tentative gains

South Korean shares were among the stronger performers during early trading, while Japanese stocks also moved higher.

Reuters reported that MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.5 per cent later in the session, while Japan’s Nikkei 225 gained 0.3 per cent.

AP subsequently reported broader gains across several major markets, with Japan’s Nikkei up 0.7 per cent and South Korea’s Kospi gaining 1.4 per cent. The different figures reflect market movements at different points during Wednesday’s session.

Asian markets nevertheless remained sensitive to changes in bond yields, energy prices and expectations surrounding US monetary policy.

Also read: Etihad Guest launches exclusive benefits for Jaywan Royal cardholders

Treasury yields add to market nerves

US government bond yields have become another major source of concern.

The benchmark 10-year Treasury yield moved above 5 per cent on Tuesday before easing to around 4.99 per cent during Asian trading. Higher bond yields can increase borrowing costs while making equities relatively less attractive to investors.

Wall Street had already reacted cautiously, with the S&P 500 falling 0.5 per cent on Tuesday for its second consecutive decline.

Oil retreats but remains above $100

Oil prices eased during Asian trading after climbing sharply a day earlier amid concerns over Middle Eastern supply disruptions.

Brent crude slipped back towards $108 a barrel after rising 2.9 per cent on Tuesday. Despite the decline, oil remains elevated enough to keep inflation concerns firmly on investors’ radar.

For Asian markets, the combination of high energy costs, elevated bond yields and uncertainty over the future path of US rates means the Fed’s accompanying guidance could prove as important as Wednesday’s rate decision itself.

Impact to expect

The Fed decision could trigger fresh volatility across Asian equities, currencies and bonds, particularly if policymakers signal that further US interest-rate increases remain possible.