A sense of unease prevails in global financial markets as the Fed starts its two-day policy meeting on Tuesday, with traders pricing in 76% odds that rates will be raised for the first time since 2006, ending the era of near-zero borrowing costs.
The Fed is widely expected to raise the federal funds rate by 25 basis points after the conclusion of a two-day monetary policy meeting on 16 December 2015. With markets having already priced in a 25 basis points rate hike this week, the focus has shifted to the likely pace and quantum of rate hikes once this first move is done.
Tightening policy would solidify the Fed's divergence from other major central banks, with policy makers in Europe and Japan still emphasising measures to support growth.
Market pundits' guides an expected first interest rate hike in almost a decade by the Federal Reserve tomorrow could squeeze emerging economies' room for manoeuvre as they try to stave off recession. Emerging economies have done well out of the Fed's latter-day generous monetary policy but with the cycle seemingly about to turn, many of them, already battling pallid growth, face further headwinds. Many emerging states are large-scale producers of raw materials and have ridden the boom of Chinese demand. With that having fallen off, growth has taken a hit. Worse still, rising rates will penalize their debt financing conditions and push down their currencies, hitting export earnings. Developing nations' central banks are pinning their hopes on a moderate rise to ensure the Fed does not make their task of keeping their own situation on an even keel insurmountable. A US rate rise risks increased capital outflow in emerging states who could respond by raising their own, in many cases already high, rates.
The prospects of more expensive cash in the US and a deepening rout in commodities markets have helped erase US$2.5 trillion from the value of global equities since December 1.
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Among Asian bourse
Nikkei slides to two-month low
The Japanese share market finished the session near two-month low, as lack of fresh economic triggers and caution before the Fed outcome continued to weigh on the investors' moods. There's market consensus that rates will rise this week, but it is unclear what happens after that, refuelling demand for safe heaven Japanese yen. All 33 TSE industry groups decent, with the day's notable losers comprised Pulp & Paper, Banks Marine Transportation, Machinery, Nonferrous Metals, Iron & Steel, and Chemicals issues. The 225-issue Nikkei Stock Average retreated 317.52 points, or 1.68%, to 18565.90, a lowest level not seen since October 22, 2015, when it closed at 18435.87. The Topix index of all Tokyo Stock Exchange First Section issues dropped 25.33 points, or 1.66%, to 1502.55.
Shares of megabanks were among the biggest contributors to losses on the Topix, with Mitsubishi UFJ Financial Group Inc down 2.5%, Mizuho Financial Group Inc down 2.5% and Sumitomo Mitsui Financial Group Inc down 2.1%.
Shares of export-oriented players extended losses due to yen appreciation against other currencies. The stronger yen weighs on the profitability and competitiveness of Japanese firms doing business abroad. Toyota Motor Corp dropped 1.9%, Sony Corp 2.2%, and Mazda Motor Corp 1.7%. Mobile carrier SoftBank Group fell 1.5% and Uniqlo-operator Fast Retailing 1.2%. Subaru automaker Fuji Heavy Industries, which relies on North America for 60% of sales, lost 1%.
Australia market sinks to two-and-half years low
A late hour selloff dragged the Australian equity market to lowest level in two-and-half years, amid caution ahead of the Federal Reserve's interest rate decision later this week. Most of the ASX industry groups declined, with declines were led by shares of bullion, materials, energy, and financials issues. At the close, the benchmark S&P/ASX 200 index declined 19 points, or 0.39%, to finish at 4909.60 points, a lowest level not seen since July 10, 2013, when it closed at 4901.40.
Shares of bullion miners tumbled on bearish outlook from brokerage houses. Societe Generale suggests gold to be slide below $1000 an ounce, while head of global asset allocation Alain Bokobza expects bullion will probably drop to $955 an ounce by the end of 2016 as the US central bank raises borrowing costs this week and follows that with three further hikes next year. The target suggests prices may sink about 10% to the lowest level since September 2009. Newcrest Mining dropped 2.5% to A$12.42 and Perseus Mining jumped 4.4% to A$0.33.
Shares of material and energy producers also declined amid continuing tensions in commodity markets, with global miner BHP Billiton down 2% to A$16.27, its multi-year low. Rival Rio Tinto was off 1% to A$41.76, while smaller iron ore player Fortescue rebounded 0.6% to A$1.805. Oil and gas producer Woodside was down 0.8% to A$26.20. Origin Energy shed 2.7% to A$4.35 and Santos 1.8% to A$3.28.
Healthcare stocks sank, with Primary Health Care plunge 9.8% to A$2.58 and Sonic Healthcare 6% to A$18.5 after the government in its mid-year budget update announced cuts in the pathology and diagnostic services sector.
China stocks fall into negative territory
The Mainland China stock market finished into negative territory after a volatile trade on Tuesday, 15 December 2015, as correction in banking and resource shares overshadowed a surge in property firms that was triggered by policy expectations. The Shanghai Composite Index declined 0.29%, or 10.31 points, to close at 3510.35. The Shenzhen Composite Index, which tracks stocks on China's second exchange, grew 1.12%, or 25.04 points, to close at 2264.72. The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, rose 1.34%, or 36.44 points, to close at 2745.70.
Shares of property developers climbed after the Communist Party's Politburo pledged to introduce new housing reforms and thereby stabilize the real estate market. The Chinese government vowed to take more steps next year to help companies lower costs, tackle property inventories, and ward off financial risks.
Shares of banking, infrastructure and resource shares fell on profit-taking after the previous day's sharp rally.
Hong Kong market ends at two-and-half month low
The Hong Kong stock market finished lower after erasing intraday gain, following weakness in the regional bourses, amid concern over turbulence in the credit markets due to widely anticipated U.S. interest rate increase by the Federal Reserve. The benchmark Hang Seng Index declined 35.48 points, or 0.17%, to 21274.37 points, a lowest level since September 30, 2015, when the benchmark's closed at 20846.30 points. The Hang Seng China Enterprises Index, benchmark measure of performance of mainland China enterprises, rose 28.16 points, or 0.3%, to 9344.07 points. Turnover marginally decreased to HK$67.11 billion from HK$77.49 billion on Monday.
Shares of companies in which Fosun Group owns majority shares continued slide today. Fosun (00656) slipped 3.5% to HK$11.66 on continued selling pressure, with Caixin news reporting that the group has heavily indebted. Fosun Pharma (02196) sank 4.1% to HK$21.
Mainland developers rose across the board after China government pledged to solve inventory problems for housing sector. CR Land (01109) put on 2.2% to HK$21.15, COLI (00688) gained 1.2% to HK$25.50.
Jiuhao (00419) gained 2.8% to HK$1.10 on talks that its new shareholders Tencent (00700), Huayi Brothers and Jack Ma-owned fund will create a HK-based film-making company.
Sensex edges up in afternoon
Indian benchmark indices moved into the green from red in early afternoon trade, amid caution ahead of a highly anticipated US Federal Reserve meeting this week. At 13:26 IST, the barometer index, the S&P BSE Sensex, was up 37.07 points or 0.15% at 25187.42. The 50-unit Nifty 50 index was up 3.65 points or 0.05% at 7753.70.
Hotel Leelaventure rose after the company completed the sale of its hotel in Goa to Ceres Hotels on a slump sale basis for a lump sum consideration of Rs 725 crore.
Marathon Nextgen Realty gained after the company fixed 22 December 2015 as the record date for the purpose of issue of one bonus share for every two shares held.
Elsewhere in the Asia Pacific region: Taiwan's Taiex index rose 0.4% to 8073.35. South Korea's KOPSI grew 0.3% to 1932.97. Malaysia's KLCI shed 0.03% to 1629.51. Singapore's Straits Times index eased 0.01% at 2814.81. Indonesia's Jakarta Composite index grew 0.1% to 4378.92. New Zealand's NZX50 added 0.1% to 6040.55.
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