By Gina Lee
Investing.com – Asia Pacific stocks were mostly down Wednesday morning ahead of the U.S. Federal Reserve’s policy decision due later in the day.
Japan’s Nikkei 225 edged down 0.12% by 11:28 PM ET (3:28 AM GMT), with investors digesting disappointing February trade data released earlier in the day. Exports contracted 4.5% year-on-year, imports grew 11.8% and the trade balance stood at JPY217.4 billion.
South Korea’s KOSPI slid 1.08% and in Australia, the ASX 200 fell 0.80%. Hong Kong’s Hang Seng Index was down 0.21%.
China’s Shanghai Composite was down 0.21% while the Shenzhen Component jumped 1.04%. U.S.-China tensions are back in the news ahead of diverging goals at Thursday’s meeting between the U.S. and Chinese officials in Alaska.
Benchmark Treasury yields were near their highest levels in over a year, with the ten-year yield trading around 1.62% on Tuesday and a 20-year bond auction also drawing strong demand. The dollar also inched up on Wednesday.
All eyes are on the Fed’s policy decision, with the updated projections for rates and the economy of particular interest. However, rates could rise sooner than the central bank’s current guidance suggests, as growing inflation expectations boost bond yields and drive a rotation from growth to value stocks.
“We’re inclined not to fight the Fed, at least until wage pressures show up … that said, growing uncertainty over the front end of the curve will contribute to market volatility in the coming months,” New York Life Investments portfolio strategist Lauren Goodwin said in a note.
Ten-year Treasury yield could hover close to 2% by the end of 2021 and “if rates increase faster than that, we could see some churn in equity markets,” the note added.
With the Fed expected to forecast that the U.S. economy will grow in 2021 at the fastest rate in decades, other investors also predicted that yields and the dollar would both continue their upward trend.
“We expect [Fed Chairman Jerome] Powell to note the Federal Open Markets Committee (FOMC) has the tools to intervene if the bond market becomes disorderly or constrains the economic recovery … but we expect Powell to push back against talk of policy tightening because of the large amount of labor market slack … U.S. bond yields and the USD could jump if the FOMC’s post‑meeting statement and Powell’s statement are not deemed dovish enough,” Commonwealth Bank of Australia (OTC:CMWAY) analysts said in their own note.
Other central banks also due to hand down their policy decisions are the Bank of England, whose decision is due out on Thursday, followed by the Bank of Japan on Friday.