MSCI Inc’s gauge of regional equities declined 0.1% following a three-day rally, while South Korea’s Kospi benchmark was down 0.6%.
Brent crude edged higher early on Wednesday after sliding about 5% to end below $79 in the previous session. Recent declines in oil prices have helped ease concerns that energy costs may reignite inflation, prompting investors to reassess the outlook for interest rates.
With a well-flagged hike from the Bank of Japan seen as an exception, most developed-world central banks including the Fed are expected to make no changes this week. The bigger focus for investors is what the policy outlook looks like under Warsh. Bloomberg Economics sees a shift in how the Fed communicates with markets as Warsh is unlikely to submit his own “dot” to the closely scrutinized dot plot, breaking with precedent under Jerome Powell, Janet Yellen and Ben Bernanke.
Options traders are increasingly divided over the Fed’s near-term rate path, with conflicting bets that span from cuts to various degrees of hikes over the coming months.
Policy forecasts from Wall Street strategists also run the gamut. US asset manager PGIM this week said the Fed will raise rates three times this year, while Citigroup Inc.’s Andrew Hollenhorst has said the central bank will cut rates this year. BNP’s recent call is for three rate hikes starting in December.
While benchmark oil prices reached their lowest levels since early March, Treasury yields remained above Monday’s lows, even after a 20-year bond auction. On the day, they were down by two to five basis points across maturities, with those on 30-year bonds leading the declines.
Meanwhile, the US and Iran are preparing to formally sign an interim peace deal that’s left both sides claiming victory, with details of the accord still emerging and leaving many European governments, energy investors and shipping companies with reservations about how fast the Strait of Hormuz can return to pre-war conditions.
With inputs from Bloomberg
