Asia stocks fall as US Fed meets, yen slides and silver hits record highs

Asian shares and Wall Street futures gave ground on Wednesday as crunch time neared for a divided Federal Reserve policy board, and earnings results threatened to test sky-high valuations in the AI space.

With most assets frozen in the Fed headlights, attention was grabbed by a sudden slide in the Japanese yen and the continued dizzy ascent of silver prices, which both hit record peaks.

The futures market, at least, is confident the Fed will cut rates by a quarter point to 3.50-3.7 per cent later in the day, pricing it at a 89 per cent probability. Yet it also assumes the guidance will be hawkish, implying just a 21 per cent chance of a January move.

Much will depend on how many "dot plot" forecasts from Fed members see one, two or no more cuts next year. Analysts also suspect at least two of the 12 voters could dissent against an easing, putting Chair Jerome Powell in a difficult position.

"Powell will likely get across that the bar for future cuts has risen and explain why some participants opposed a cut," wrote David Mericle, chief U.S. economist at Goldman Sachs.

"But the Fed cannot box itself in too much - especially at a time when we are two employment reports out of date - because a January cut could turn out to be appropriate."

The November payrolls report has been delayed to December 16 because of the government shutdown, while inflation figures are due two days later.

Debt markets could be pleasantly surprised should analysts at BofA prove right and the Fed announces plans to start buying Treasury bills from January to head off a liquidity squeeze.

For now, equity investors were putting discretion ahead of valour and kept trading to a minimum. Japan's Nikkei started higher but soon fell 0.5 per cent, while South Korea lost 0.4 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent, as Chinese blue chips fell 0.8 per cent in the wake of mixed inflation data.

Consumer price inflation picked up to an annual 0.7 per cent in November, but still slipped for the month alone, while producer prices remained mired in deflation.

EARNINGS TEST FOR AI INFRASTRUCTURE

EUROSTOXX 50 futures were flat, while FTSE futures fell 0.3 per cent and DAX futures lost 0.2 per cent.

S&P 500 futures dipped 0.1 per cent, as Nasdaq futures eased 0.2 per cent ahead of key earnings from tech major Oracle and Broadcom.

"What they detail on capex intentions and future funding plans could resonate across the AI space, and there are clear risks they could miss on cloud infrastructure," said Chris Weston, head of research at broker Pepperstone.

"The options market is pricing an earnings-day move of around -/+10 per cent, so outsized volatility is certainly expected."

In anxious bond markets, 10-year Treasury yields were steady for the moment at 4.187 per cent, having climbed from a low of 3.962 per cent in just the nine sessions.

A break of 4.201 per cent chart support would risk a spike toward 4.535 per cent, making the Fed's outlook all the more important.

The rise in yields has put a prop under the dollar, further assisted by a broad bout of selling in the yen overnight which looked to be driven by momentum-tracking funds.

The euro was a major gainer as it broke to an all-time high of 182.64 yen, while the pound hit peaks not seen since mid-2008 at 208.95 yen.

The dollar stood at 156.75 yen, having risen 0.5 per cent on Tuesday, and was a shade firmer on a basket of currencies at 99.234.

Silver was again the star in commodities, having cleared the $60 barrier to reach a record $61.02 per ounce. The metal has more than doubled in price this year as inventories dwindled and a bullish trend drew demand from momentum funds.

There is also rising real demand from sectors including solar energy, electric vehicles and their infrastructure, and data centres and artificial intelligence, the Silver Institute industry association said in a research report.

Gold was quieter at $4,212 an ounce, having peaked at $4,381 back in October. [GOL/]

Oil prices steadied, having lost ground early in the week when Iraq restored production at Lukoil's West Qurna 2 oilfield, one of the world's largest. [O/R]

Brent edged up 0.2 per cent to $62.07 a barrel, while U.S. crude rose 0.2 to $58.39 per barrel.