SYDNEY, Dec 8 : Asian shares dithered on Monday as investors bet the farm on a rate cut from the Federal Reserve this week, yet the meeting could be one of the most fractious in recent memory with some policy makers openly arguing against an easing.
Markets imply around an 85 per cent chance of a quarter-point reduction in the 3.75 per cent to 4.0 per cent funds rate, so a steady decision would be a seismic shock. A Reuters poll of 108 analysts found only 19 tipping no change, and the rest a cut.
“We expect at least two dissents in favour of no action and that only a slim majority of the 19 FOMC participants will indicate in their updated dots that a December cut was appropriate,” wrote Michael Feroli, head of U.S. economics at JPMorgan, in a note.
The Federal Open Market Committee has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990.
Feroli also thinks the Fed will cut in January as insurance against a sustained weakening in the labour market, before going on a lengthy policy pause. Markets currently see only a 24 per cent chance of a January move and a further easing is not fully priced until July.
Central banks in Canada, Switzerland and Australia also meet this week and all are seen holding steady. The Swiss National Bank might like to ease again to offset the strength of its franc, but is already at 0 per cent and reluctant to go negative.
A run of hot economic data has led markets to abandon any hope of another easing from the Reserve Bank of Australia and even price in a rate hike for late 2026.
Hopes for more Fed stimulus has helped support equities in recent weeks, though the risk of a hawkish outlook on Wednesday made for cautious trading. S&P 500 futures and Nasdaq futures were both little changed in early action.
Earnings this week from Oracle and Broadcom will test the appetite for all things AI-related, while Costco will provide colour on consumer demand.
BONDS UNDER PRESSURE
In Asia, Japan’s Nikkei dipped 0.3 per cent, after making a modest 0.5 per cent gain last week. South Korean stocks eased 0.3 per cent, having jumped 4.4 per cent last week on confirmation of a lower U.S. tariff on its exports.
MSCI’s broadest index of Asia-Pacific shares outside Japan was off a slim 0.1 per cent in quiet trade.
Chinese blue chips should take their cue from November trade data this morning which will offer fresh evidence on how its exports are faring in the face of tariffs.
In bond markets, longer-dated Treasuries have been under pressure given the risk of hawkish guidance from the Fed even if it does agree on a cut this week.
There are also concerns President Donald Trump’s attacks on Fed independence could lead to rates going too low and stoking inflation over the long run.
On Monday, 10-year yields were a fraction higher at 4.146 per cent having climbed 9 basis points last week.
The rise in yields has helped the dollar steady after two weeks of decline, with its index holding at 99.013.It was flat at 155.37 yen, after touching a three-week low at 154.34 on Friday.
The euro was steady at $1.1638, just short of its recent seven-week high at $1.1682.
Commodities have been generally underpinned by wagers on more U.S. policy stimulus, with copper reaching all-time highs thanks to a mixture of supply concerns and demand from AI-related infrastructure investment.
Gold stood at $4,202 an ounce, after spiking as high as $4,259 on Friday, while silver was just off a life-time peak.
Oil prices were also supported by the chance of lower interest rates combined with geopolitical uncertainty that could limit supplies from Russia and Venezuela.
Brent added 0.2 per cent to $63.85 a barrel, while U.S. crude rose 0.2 per cent to $60.18 per barrel.
(Editing by Shri Navaratnam)