Asian stocks are expected to edge higher on Wednesday, with equity-index futures pointing to modest gains in Japan, Hong Kong, and Australia. Futures for South Korea were largely unchanged. This comes as traders remain cautious ahead of the Federal Reserve’s interest-rate decision, which is being closely watched following last week's hotter-than-expected core inflation data. Contracts for US stocks also opened in the green, after the S&P 500 and Nasdaq 100 experienced declines for a second consecutive session on Tuesday.
The context for these market movements includes surging oil prices and rising bond yields. US oil traded 0.4% lower in early Asian trading on Wednesday, after Brent crude settled near $109 per barrel. The US 10-year Treasury yield, which had risen as high as 5.04%, retreated slightly to 5.00%. Longer-dated Treasuries, however, continued their decline after a weak $13 billion sale of 20-year bonds. The dollar also rose for a second day, while Bitcoin extended its slump after the US Senate blocked a landmark crypto market structure bill.
The upcoming Fed decision is particularly significant as markets are pricing in over a 90% chance of the first rate hike in about three years. This potential increase in policy rates would add pressure to equities, which are already contending with elevated energy and borrowing costs. According to Chris Senyek at Wolfe Research, while stocks might see downward pressure in the near-term if the Fed hikes rates, historically they tend to recover and move into positive territory six to twelve months after the initial rate hike. This week will also see policy decisions from central banks in the UK and Japan, which could further reshape the monetary-policy outlook for the remainder of 2026.
