Asian shares slip as investors await Federal Reserve meeting

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Asian shares slipped on Tuesday, hobbled by uncertainty as traders awaited a Federal Reserve meeting for clues on US monetary policy, though sentiment was supported by record highs on Wall Street.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2 percent after wobbling between positive and negative territory in early trading.

Futures suggested a lackluster start to the European trading day, with the Eurostoxx 50 STXEc1 and FTSE futures FFIc1 both slightly lower, and DAX futures FDXc1 up 0.1 percent.

On Wall Street on Monday, the Dow Jones Industrial Average DJI closed at a record high for the fifth straight session, and the S&P 500 SPX marked its second straight closing record high, as higher US Treasury yields helped lift financial shares.

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At a two-day meeting beginning later on Tuesday, the Fed is expected to take another step toward policy normalization and announce the plans to begin unwinding its 4.2 US dollar trillion portfolio of the Treasuries and mortgage-backed securities.

The Fed is expected to hold interest rates steady, with investors looking for clues on its anticipated pace of further tightening later this year and next. The market is pricing in an approximately even chance of a hike in December.

“If the Fed does keep the option for December alive, and reaffirms its view in terms of gradual rate increases, that may be dollar-supportive, given the more benign rate-hike path priced by the market,” said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.

Japan's Nikkei stock index .N225 ended 2 percent higher after touching its highest levels since late June, catching up to global equities gains and a weaker yen as Tokyo markets reopened after a public holiday on Monday.

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On Thursday, the Bank of Japan will also hold a regular policy meeting and is widely expected to maintain the status quo as inflation remains stubbornly weak despite a modest economic recovery.

Investors were also debating any potential market impact from a possible snap election.

Japanese Prime Minister Shinzo Abe is considering calling a poll for as early as next month to take advantage of his improved approval ratings and disarray in the main opposition party, according to government and ruling party sources.

“There has been concern among foreign investors, about the future of Abenomics and the Abe administration, with clear declines in Abe’s approval ratings earlier this year,” said Stefan Worrall, director of Japan equity sales at Credit Suisse in Tokyo.

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South Korean shares KS11 dipped 0.1 percent, against a backdrop of caution ahead of the Fed meeting as well as continuing tensions on the Korean peninsula.

US Defense Secretary Jim Mattis hinted on Monday about the existence of military options on North Korea (the DPRK) that might spare Seoul from a brutal counterattack. But he declined to say what kind of options he was talking about or whether they involved the use of lethal force.

The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.1 percent lower to 91.928 DXY.

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Source(s): AP ,Reuters