Asia Markets: Asian markets take a breather ahead of Fed decision

Asian markets remained in limbo Wednesday ahead of critical meeting on the U.S. Federal Reserve Open Market Committee, when it is widely expected to raise interest rates.

Korea’s Kospi SEU, -0.07%   was down 0.2%, Australia’s S&P/ASX 200 XJO, +0.72%   gained 0.9% and Hong Kong’s Hang Seng Index HSI, +0.60%   climbed 0.5%.

Asian markets have been in lockdown all week as traders do not want to be caught out by a surprise event — no rate increase. Traders are also waiting for guidance on the Fed’s plans for rate rises in 2017.

But whatever the decision, the Fed news — due in the early hours of Thursday, Asian time — will unlock regional markets, with stocks expected to start moving Thursday.

“The Fed rate hike…it’s obviously going to drive the markets,” said Christoffer Moltke-Leth, director of global sales trading at Saxo Capital Markets, noting the market widely expects an interest rate increase. “This is something we’ve been waiting for all year.”

This would be only the second interest rate increase by the Fed in a decade, and it harkens a new era of rising inflation and likely heavy spending by President-elect Donald Trump.

Japan’s Nikkei NIK, +0.10%   was down 0.1%, led by financial and energy stocks. Dai-ichi Life 8750, -0.20%   was down 0.8%.

The Bank of Japan quarterly tankan survey released today showed that sentiment among big manufacturers rose to plus 10 over the three months to December from plus 6 in the previous quarter. A plus figure means the percentage of respondents saying business conditions are favorable exceeds those saying they aren’t.

Trump’s election has been a boon for Japan’s manufacturers. The yen has fallen more than 10% against the dollar to around Y115 on expectations for Trump’s likely economic policies. Yen devaluation makes Japan’s exports more competitive in U.S. dollars.

The rebound in the Bank of Japan tankan’s headline index is likely to give the central bank an excuse to refrain from further easing, says Marcel Thieliant, senior Japan economist at Capital Economics. The tankan also shows companies are cautious on their capex plans but these predictions usually pick up towards the end of the fiscal year, he says.

“The Bank of Japan tends to pay considerable attention to firms’ capital spending plans, even though they often lag actual expenditure and their link with actual spending is rather weak,” he says.

On the Hang Seng Index, the biggest gainers in early Asian trade were energy stocks. China Petroleum & Chemical Corp. 0386, +3.91%   jumped 5.5% on a Bloomberg report that it’s considering an initial public offering of its gas station and convenience store business, raising as much as US$ 10 billion.

PetroChina 0857, +3.47%  , meanwhile, gained on news that Sinopec has agreed to sell a 50% stake in its Sichuan to East China gas pipeline for 22.8 billion yuan ($ 3.3 billion). The stock has gained 8.2% over the past two days on the news.

Sinopec’s deal is positive for rival PetroChina, says Bernstein Research, which believes the latter company also intends to sell down its pipeline network over the next two years to boost returns.

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