Marketmind: Full steam a-Fed

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FILE PHOTO: An eagle tops the U.S. Federal Reserve building's facade in Washington

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever

Some of the developed world’s central banks might be nearing peak rates and preparing to pivot – Australia’s and Canada’s spring to mind – but not the Fed.

Not. At. All.

The U.S. central bank announces its latest interest rate decision on Wednesday, and if Tuesday’s manufacturing ISM index and latest job openings data are any guide, the Fed will deliver a fourth consecutive 75 basis point increase.

The forecast-beating reports were one in the eye for recessionistas, who had noted that the Fed’s favored recession-warning yield curve had just inverted.

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Wall Street slumped into negative territory following a positive open, and the Fed’s implied terminal rate in rate futures markets spiked back up to 5%. (Graphic: SOFR implied rates – 2023, https://fingfx.thomsonreuters.com/gfx/mkt/zjvqjqdwepx/sofr2023.png)

Investors appear to be back to the view that good (economic) news is bad (interest rate and market) news, but they had started the first trading day of the new month on a more optimistic footing.

Speculation spread through markets that China could soon reopen from strict COVID-19 curbs, a move that would likely give the global economy an immediate and substantial boost.

An unverified note on social media said a “Reopening Committee” has been formed by a Politburo Standing Member, which is assessing various reopening scenarios and could relax COVID-19 rules in March 2023.

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This would be a rare and welcome bit of good news from China following months of negative headlines on the country’s exchange rate, housing sector, financial markets and political outlook.

The yuan slid to a new 15-year low before recovering and Chinese stocks rebounded on the news too, while the MSCI Asia ex-Japan surged more than 2.5%. That was its best day since March.

Markets will likely be on edge Wednesday, however, as investors position for the Fed.

Three key developments that could provide more direction to markets on Wednesday:

South Korea inflation (October)

India trade balance (October)

U.S. Fed rate decision

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(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Josie Kao)

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