Asian equities rise ahead of Fed rate decision

Asian equities and European futures rose ahead of the Federal Reserve’s monetary policy decision, in which the US central bank is expected to keep up the fight against inflation and raise interest rates by 0.25 percentage points.

Hong Kong’s Hang Seng index added 1.8 per cent, China’s CSI 300 gained 0.3 per cent and South Korea’s Kospi rose 1.1 per cent. Japan’s Topix jumped 1.9 per cent, after markets reopened following a one-day break for the vernal equinox holiday.

European futures also pointed higher, with contracts for the Euro Stoxx 50 and the FTSE 100 up 0.4 per cent and 0.1 per cent, respectively.

Banking stocks also pushed higher, with the Hang Seng Finance index and Topix Banks index up 1.8 per cent and 2.4 per cent, respectively.

Investors are looking ahead to a rate decision from the Fed later in the day. Futures markets indicate traders are expecting an increase of 0.25 percentage points from the current range of 4.5 per cent to 4.75 per cent.

Expectations for interest rate rises have declined in recent weeks, as traders bet that turmoil in the banking sector triggered by the collapse of Silicon Valley Bank and UBS’s takeover of rival Credit Suisse would force the Fed to ease off its tightening cycle.

Markets now expect rates to peak at just below 5 per cent in June and end the year at around 4.38 per cent.

The Bank of England also meets on Thursday. Pricing from swaps markets indicates investors are divided between a 0.25 percentage point increase and no change.

Efforts to curb contagion in the financial system, including a suggestion from US Treasury secretary Janet Yellen that the government could step in to back all deposits at the country’s smaller lenders, helped assuage nerves on Tuesday.

The blue-chip S&P 500 index added 1.3 per cent and the tech-heavy Nasdaq Composite climbed 1.6 per cent.

The dollar was flat against a basket of other currencies on Wednesday, near five-week lows ahead of the Fed decision.

US Treasuries made minor gains, with the yield on the two-year note, which is sensitive to interest rate expectations, falling 0.01 percentage points to 4.16 per cent.

The yield on the 10-year note dropped 0.01 percentage points to 3.60 per cent. Yields move inversely to price.

Oil prices fell, with West Texas Intermediate, the US marker, slipping 0.5 per cent to trade at $69.33 per barrel, breaking a two-day advance of nearly 4 per cent. Brent crude, the international benchmark, lost 0.4 per cent to $75.02.