Asian stocks rise mostly before Fed’s rate hike decision

Asian stocks rose mostly on Tuesday as the Federal Reserve and other central banks prepared for the last barrage of rate hikes of the year.

In Tokyo, the Nikkei 225 rose 0.4% to 27,961.66, while Hong Kong’s Hang Seng rose 0.5% to 19,559.93. In Australia, the S&P/ASX 200 rose 0.3% to 7,203.30.

Kospi in Seoul fell 0.3% to 2,366.89. The Shanghai Composite index held steady at 3,179.71. Shares fell in India and Taiwan but rose in Singapore and Bangkok.

Markets have struggled this year thanks to high inflation and interest rate hikes designed to combat it. Higher rates slow business activity by design, but also risk causing a recession if it gets too high, all of which drives down the prices of investments.

On Monday, the S&P 500 rose 1.4% to 3,990.56 on Wall Street. The Dow Jones Industrial Average rose 1.6% to 34,005.04. The Nasdaq was up 1.3% to 11143.74. Russell 2000 was up 1.2% to 1,818.61.

Indices were coming out of their first weekly losses in three weeks.

Technology stocks had a significant share in gains in the market. Microsoft rose 2.9% to become the single biggest force lifting the S&P 500. The London Stock Exchange Group has agreed to a 10-year deal where it will move data to Microsoft’s cloud and spend at least $2.8 billion. Microsoft also takes a 4% ownership stake in the company.

Horizon Therapeutics rose 15.5% after Amgen announced it would buy the biopharmaceutical company for approximately $26.4 billion.

The rally came ahead of a major inflation report and a meeting of policymakers at the Federal Reserve on Tuesday, after which investors expect the Fed to announce its last rate hike of the year on Wednesday, following a blitzkrieg that began in March.

The Fed’s hint that it will reduce the size of rate hikes led to expectations for a more moderate 0.50 percentage point increase on Wednesday.

This will follow four consecutive mega hikes of 0.75 percentage points. Each was three times the Fed’s usual move, and they raised the central bank’s basic overnight rate to the range of 3.75% to 4% after starting the year from near zero.

Other central banks around the world, including the European Central Bank, are also likely to raise their rates by half a percentage point this week.

Economists at Goldman Sachs expect Fed policymakers to signal on Wednesday their median expectations for rates to eventually reach the 5% to 5.25% range.

Even as inflation is declining, the global economy still faces threats from forced rate increases. The housing sector and other businesses that rely on low interest rates have shown particular weakness, and concerns are growing about the strength of corporate profits in general.

The next big milestone for the markets comes with the release of the latest update on consumer-level inflation on Tuesday. Economists estimate that inflation slowed to 7.3% last month from 7.7% in October.

Besides raising short-term interest rates, the Fed is making other moves with its broad bond investments, which should allow long-term yields to rise effectively.

The 10-year Treasury yield, which helps set rates for mortgages and other loans, rose to 3.61% from 3.59% late Friday. The two-year yield, which tends to follow the expectations for the Fed more closely, rose to 4.39% from 4.34%.

Energy producers rallied on Monday after the US oil price rose 3%. Exxon Mobil was up 2.5%.

US benchmark crude rose $1.04 a barrel to $74.21 in electronic trading on the New York Mercantile Exchange. Brent crude, the basis of pricing for international trade, rose from $1.15 to $79.14 a barrel.

Crude oil prices fell to yearly lows last week amid concerns about a weakening global economy that will mean reduced energy demand.

In foreign exchange transactions, the dollar rose from 137.68 yen to 137.69 yen. The euro rose from $1.0534 to $1.0543.


AP Business Writers Stan Choe and Alex Veiga contributed.

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