Hong Kong: Asia stocks edged up on Tuesday and the dollar hit a two-month low against the euro, with investors eyeing what unorthodox policies the Federal Reserve may adopt along with an expected interest rate cut to 0.5% or lower.
With rates approaching zero, market players are looking for clarity on what policy measures the Fed will consider using, such as outright purchases of financial assets, to help pull the economy out of a sharp recession.
“While an additional rate cut by the US Fed is widely expected, market reaction to the cut is still very much uncertain, as another rate cut means the Fed is left with one less card to offer,” said Lim Tae-gun, a market analyst at Daewoo Securities in Seoul.
Recent remarks from European central bankers reflect a reluctance to cut rates from 3%, contrasting with the Fed and suggesting the interest rate advantage of the euro has staying power.
But Treasuries also gained as the Fed is likely to give some indication of how it will guide policy beyond interest rates, helping drive the benchmark 10-year yield back near a 54-year low hit last week.
European shares were set for a mildly positive start as markets also awaited quarterly earnings from US bank Goldman, which is expected to post its first quarterly loss since going public in 1999 in a sign of the severe market conditions still slamming the financial sector.
Asian shares were mixed, with Japan’s Nikkei average falling 1.1% as the yen’s strength against the dollar hurting shares of exporters.
But the MSCI index of Asia-Pacific stocks outside Japan edged up 0.4%, but is still down about 54% so far this year.
Foreign investors for the last several weeks have been cautiously loading their portfolios back up with Asian stocks, particularly companies with relatively low valuations and little debt on their balance sheets.
The dollar has suffered a sharp turn lower in December, falling 10 cents versus the euro, and analysts say this is because the capital US investors took back home in the last several months has begun to slowly flow overseas again.
Dismal economic data in both Asia and the United States kept upward pressure on government bond prices and fears high that deflation was descending over the global economy.
US light crude for January delivery was steady just below $45 a barrel, ahead of what is expected to be the largest ever supply cut by Opec at a meeting on Wednesday.