Asian Stocks Up, but Sky-High Valuations Cap Gains Ahead of Fed Policy Decision

This post was originally published on this site – Asia Pacific stocks were mostly up Wednesday morning, but already-high valuations ahead of the U.S. Federal Reserve’s latest policy decision put a cap on gains.

Japan’s Nikkei 225 fell 0.34% by 10:52 PM ET (2:52 AM GMT) as the country reported a 5.2% increase in retail sales year-on-year in March, higher than both the 4.7% increase in forecasts prepared by and February’s 1.5% contraction.

South Korea’s KOSPI fell 0.82%.

In Australia, the ASX 200 gained 0.46% after consumer price index (CPI) data released earlier in the day missed forecasts. The CPI rose 0.6% quarter-on-quarter and 1.1% year-on-year during the first quarter of 2021.

Hong Kong’s Hang Seng Index was up 0.24%. An immigration bill that some argue could prevent Hong Kong residents and others from entering or leaving the city, is up for a second reading in the Legislative Council and could be passed later in the day.

China’s Shanghai Composite inched up 0.07% and the Shenzhen Component was up 0.29%.

Bonds fell as the benchmark 10-year Treasury yield climbed back above 1.6% ahead of the Fed handing down its April policy decision later in the day.

Some investors were optimistic that the central bank would take a more positive tone, even as they expect no major changes to policy itself.

“We expect the Fed’s tone on the economy to be more positive than at the March meeting, reflecting the ongoing pickup in the data, but we don’t expect any substantive new signal yet on tapering,” TD Securities analysts said in a note.

“While we do not expect much price action due to the Fed decision, Biden’s remarks could continue to suggest more incoming supply, bear steepening the Treasury yield) curve,” the note added.

However, investors will look for any hints that the Fed will pull back on asset purchases as the economic outlook continues to improve, as they remain concerned that any withdrawal of support could trigger volatility in global rates and risk assets.

“This is a Fed which is oriented toward the market, they’ve boxed themselves in, in the sense that they’ve given the market a lot of reason to depend on them… if Fed chairman [Jerome Powell] changes tack you’re going to have a massive market correction,” Sri-Kumar Global Strategies Inc. president Komal Sri-Kumar told Bloomberg.

U.S. President Joe Biden will also give an address in front of a joint session of Congress later in the day, his first as president. Investors will be monitoring the address for further clues on infrastructure and stimulus spending.

Also on the data front, the U.S. will release its GDP for the first quarter of 2021 on Friday.