Asian stocks up, dollar on backfoot before Fed

Asian stocks up, dollar on backfoot before Fed

Singapore: Asian stocks rose on Wednesday following overnight gains on Wall Street while the dollar was under pressure ahead of a Federal Reserve meeting that is expected to provide more stimulus to spur a flagging recovery.

The MSCI index of Asia Pacific stocks outside of Japan was up 0.34% helped by gains in materials and energy in line with Wall Street after a swing towards the Republicans in US elections lifted investor sentiment.

Hong Kong’s Hang Seng Index leapt to its highest in 28 months, rising 1.9% spurred by gains in banks and oil counters.

South Korea’s KOSPI gained 1% on foreign buying with banks and insurers up amid strengthening expectations for an interest rate hike after the Australia central bank’s surprise decision to increase rates.

Japan’s financial markets are closed because of a public holiday.

The dollar stayed on the backfoot in Asia with the euro holding above $1.4000 and the Aussie just off parity ahead of the Fed meeting.

Due at around 11:45pm, the Fed is expected to announce plans to buy hundreds of billions of dollars in US government debt in order to foster a stronger economic recovery.

Markets are generally priced for the Fed to initially commit to buying at least $500 billion in Treasuries over five months, although much uncertainty surrounds the scope and pace of bond purchases.

“I think they’ll take the approach that central banks usually take for interest rates, which is to make a small change now and reconsider at the next meeting," said Joseph Capurso, currency strategist at Commonwealth Bank in Sydney.

“The market is going to be surprised and the US dollar is going to have a strong across-the-board rally. The market has a lot priced in now and that’s keeping the dollar weak."

Markets were also keeping an eye on the results of US mid-term elections on Tuesday. Television networks projected the Republicans would seize control of the House of Representatives although the Democrats were likely to maintain the Senate.

A divided Congress is typically seen as bullish for stocks as it makes passing new laws harder and lessens uncertainty for business.

Some analysts said a Republican victory could also be positive for the US currency on market hopes for increased fiscal austerity and less government regulation.

Gold inched down despite the weaker dollar as investors stayed on the sidelines on the last day of the Federal Reserve’s meeting.

Spot gold eased 55 cents to $1,356.45 an ounce, off a two-week high at $1,365.49 hit on Monday. Gold struck a record around $1,387 last month.

Oil rose to a six-month high above $84 for a second straight session after an industry report showed declines in US inventories across fuel categories, a sign chronic oversupply is subsiding at the world’s top user.

US crude for December gained 42 cents to $84.32 at 0050 GMT, after touching $84.50 earlier, the highest intraday price since May 4. ICE Brent rose 32 cents to $85.73.