Asian stocks report gains ahead of the Fed rate decision

  • Asian stocks are mildly bid with Japanese stocks adding 0.11%. 
  • Most observers expect the Federal Reserve to cut rates by 25 basis points. 
  • The odds of a rate cut stood at 50/50 on Tuesday. 

The Asian equities are flashing moderate gains as the US Federal Reserve (Fed) is likely to lower interest rates Wednesday for the second time in less than two months. 

As of writing, Japan’s Nikkei is trading 0.11% higher on the day and the Shanghai Composite index is adding 0.40%. Shares in Hong Kong are flat-lined, while their South Korean counterparts are up 0.5% on the day. 

Australia’s S&P/ASX 200 is down 0.18% at press time, largely due to losses in the energy shares. 

The US stocks also eked out modest gains in the overnight trade with the Dow Jones Industrial Average adding 0.13%. As of writing, the futures on the S&P 500 are trading flat-lined. 

Many observers believe the US Fed will cut rates by 25 basis points to a range of 1.75% to 18:00 GMT despite firming inflation, healthy consumer spending and easing trade tensions.  There’s no way they can walk that back at this point,” said Wells Fargo Senior Economist Tim Quinlan, according to USA Today. 

The market, however, is not sure if the Fed will deliver the rate cut. For instance, the odds for a 25 basis point September rate cut, however, stood at about 50-50 on Tuesday vs. 62% Monday and well over 90% a week earlier. 

If the Fed keeps rates unchanged or delivers a hawkish cut – reduces rates, but pushes back against expectations of a third rate cut later in 2019 – the stocks will likely come under pressure, pushing the Yen higher against most currencies.

The risk sentiment will get a boost if the Fed cuts rates by 25 or 50 basis points and signals more easing in the near-term. 

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