Global Market Today: Asian stocks steady as traders await Fed decision

Asian stocks maintained a steady performance as investors remained cautious due to high oil prices and increasing bond yields, all leading up to the Federal Reserve's interest-rate decision. The MSCI's Asian equities index rose by 0.1%, while Wall Street's market gauges also saw a slight increase in the early trading hours. However, the S&P 500 and Nasdaq 100 fell on Tuesday, with chipmaker stocks only marginally advancing.

The positive sentiment was driven by a drop in US crude oil prices, which fell by 0.6% to $105.15 a barrel after surging over 20% in the past month. The rise in energy costs, coupled with speculation of a Federal Reserve rate hike, had triggered a bond sell-off, pushing the 10-year Treasury yield to a peak of 5.04% in almost two decades. However, it eventually closed at 5.00%.

Earlier, US Treasury Secretary Scott Bessent attributed the rise in bond yields to global issues. Treasury futures consolidated, and government bonds opened higher in Australia and New Zealand. Meanwhile, Bitcoin's value continued to drop, trading around $75,600, as the US Senate rejected a crucial cryptocurrency regulation bill.

The Federal Reserve's decision on Wednesday was a focal point, especially after core inflation exceeded expectations last week and concerns over government budgets increased the likelihood of the first rate increase since 2023. Markets were pricing in a more than 90% chance of the hike, suggesting tighter financial conditions due to high energy and borrowing costs affecting equities.

Analysts noted that if the Fed follows the futures market and raises rates, stocks would likely experience short-term downward pressure. However, over a longer time frame of six to 12 months post the initial rate hike, equities typically recover and move into positive territory. Three major central banks were set to meet during the week, including the Fed, UK, and Japan, potentially altering the monetary-policy outlook for the rest of 2026.

A decision to maintain rates, or a hike without clear guidance on future increases, might push investors to seek higher long-term yields to hedge against inflation. Conversely, shorter-dated yields would closely follow the Federal Reserve's policy direction. Higher interest rates and elevated oil prices were likened to equities running a marathon with ankle weights, as higher rates increase the discount rate investors apply to future earnings, while higher energy costs reduce consumer purchasing power and put pressure on profit margins.