Asian stocks fluctuate between losses and gains as focus shifts to Fed policy

Asian equities could end Friday’s three-day gains as traders and investors faced mixed earnings reports and now look to next week’s Federal Reserve meeting for clues as to whether there will be a reversal in the pace of rate hikes.

The broadest Asia-Pacific MSCI stock index outside of Japan fell 1.56% to 433.92, but above a two-and-a-half-year low of 427.42 on Monday. The index is down 4% for the month and about 31% for the year.

European stock futures showed that stocks will fall, with Eurostoxx 50 futures down 0.75%, German DAX futures down 0.71%, and FTSE futures down 0.61%.

Unsatisfactory profit and loss report from companies added to the pessimism. Amazon.com, the newest tech giant, will face a downturn from investors after forecasts of a slowdown in sales.

Solid corporate earnings have been one of the highlights of a tough year, although recent poor results raise doubts about how long this will last.

In the foreign exchange market, the Japanese yen fluctuated between losses and gains against the dollar after the Bank of Japan stuck to its ultra-low interest rate policy but raised its inflation target.

The expected action by the Bank of Japan came after the European Central Bank raised interest rates again on Thursday, but said that visible progress had already been made in the fight against inflation.

Traders and investors are now looking forward to the Federal Reserve meeting next week. A 75 basis point rate hike at the November 1-2 meeting is all but guaranteed, with a smaller 50 basis point hike in December being 55% likely, according to CME’s FedWatch tool.

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There are probably no surprises in terms of rate hikes, the emphasis here is more on the message the Fed will make.

Some of the ECB’s comments have slightly confirmed expectations that central banks may slow down the pace of monetary tightening, in particular after the Bank of Canada provided a smaller-than-expected rate hike.

Markets have started trading the Fed’s reversal again, but it’s more of an advance in smaller steps rather than a reversal from bullish to contraction, and the actual pause is still a long way off.

In China, the stock market fell 0.8% and Hong Kong’s Hang Seng fell 2.3%, ending a tough week after a strong sell-off on Monday. The disappointing performance of industrial profits and the expansion of COVID-19 outbreaks also weighed on sentiment.

Meanwhile, the Japanese Nikkei fell 0.45% and the Australian S&P/ASX 200 shed 0.87%.

The yen gained 0.01% against the US dollar to 146.27 per dollar, while the dollar index fell 0.109%.

The euro rose 0.17% to $0.9979, set to rise above parity again after falling more than 1% the day before following a dovish ECB tone.

Oil prices tumbled on Friday after China extended its COVID-19 restrictions but was poised for a weekly rise due to supply issues.