Asian stocks are poised for losses, following a decline on Wall Street after the Federal Reserve's first interest rate hike since 2023 and signals of further tightening to curb inflation. However, US stock futures were little changed after the S&P 500 Index. Futures for Australia, Hong Kong, and South Korea pointed lower, while those for Japan showed a modest gain, indicating a mixed outlook for the region.
US stocks rallied alongside Treasuries as falling oil prices supported optimism that inflation can be controlled, a day after the Fed's rate hike and commitment to further tightening. S&P 500 futures rose 0.8%, Nasdaq 100 futures climbed 1.1%, and Dow Jones Industrial Average futures gained 0.8%. Brent crude headed for back-to-back losses, falling more than 2% towards $103 a barrel, while West Texas Intermediate crude fell 1.6% to $100.76 a barrel. Treasuries climbed across the curve, with the 10-year yield dropping five basis points to 4.97%. The dollar was little changed, and gold headed for its first gain of the week, rising 1.5% to $4,328.28 an ounce.
The decline in crude prices was attributed to signs of easing supply disruptions in the Middle East, with Saudi Arabia aiming to restore about half the capacity of its East-West pipeline within days. The market is assessing the implications of the Fed's rate hike and commitment to controlling inflation, which has alleviated concerns over price pressures that had driven bond yields to multi-decade highs. Falling oil prices are bolstering hopes that the most severe inflation fears may not materialize.
The Federal Reserve's "dot plot" suggests one more rate hike this year, while money markets are pricing in a total of three hikes over the next 12 months. Joachim Klement, a strategist at Panmure Liberum, believes that current market expectations for additional rate hikes in 2027 are likely overdone and that bond yields are more likely to move lower, which should support stock markets. Companies linked to artificial intelligence performed well in early trading, with Nvidia Corp. rising 1.4%, and all members of the Magnificent Seven posting gains. Following the rate decision, earnings expectations are returning as the primary driver for stocks, according to Alexandre Drabowicz at Indosuez Wealth Management.
