US stocks fell amid a broad-based selloff as risk-off prevailed ahead of the Fed's decision on its benchmark rate and forward guidance of the monetary policy. The probability for the Fed to raise rates by 75 basis points stays at 84%, while the chance for a full percentage hike is at 16%, according to the CME Fed Watch Tool. The 2-year US Treasury yield, which is most sensitive to interest rate, rose to 3.97%, the highest seen in November 2007, lifting the US dollar and pressing on the other counterparty currencies. However, the drop in risk assets could provide a rebounding opportunity if the Fed turns less hawkish as a 75-bps rate hike should have been priced in.
Market performance as of 21 September
- Dow fell 0.91%, the S&P 500 was down 1.15%, and Nasdaq declined 0.97%. All 11 sectors in the S&P 500 finished in red, with real estate and material leading losses, down 2.6% and 1.95%, respectively. Apple was the only tech share that finished higher, up 1.55% amid the price increase of its APP store. Ford’s stocks tumbled 12% on a supply chain cost warning.
- China kept its loan prime rates unchanged on the back of an accelerating devaluation in the Yuan. However, China’s steps to scale back restrictions on foreign travellers boosted the Chinese shares on Tuesday, with Alibaba up 2.5%, and Baidu rising 3.4% on HKEX. The optimism also offered a push to the commodity markets before pulling back following equities’ selloff on Wall Street.
- Asian markets are set to open lower on broad risk-off sentiment ahead of the crucial Fed’s announcement of its monetary policy on AEST 4 am tomorrow. ASX futures were down 1.10%. Nikkei225 futures fell 0.80% and Hang Seng Index futures declined 0.79%. The RBA policy meeting minutes indicated that the Reserve Bank may start to slow down the pace of rate hikes on economic concerns, with members debating on a 25 or 50 bps rate hike in its next meeting. The slightly dovish tone supported ASX to rise on Tuesday.
- Sweden’s Riksbank surprisingly raised the interest rate by 1 full percentage to 1.75% to rein in inflation, which printed at 9.0% year on year in August. It is the biggest rate hike in 30 years. However, the move did not help boost the Swedish krona, with USD/SEK rising 1.15% to 10.91 this morning.
- Commodities were under pressure due to a strong US dollar and expectations for another supersized rate hike by the Fed. While spot gold faces key resistance around $1,680, the WTI futures are under pressure of the resistance level at $86.68 for the last three days.
- Ethereum may approach a near-term bottom after a 15% drop since the token completed a major merge. The second-largest cryptocurrency has been sold off amid profit-taking trade. But it may have been oversold from a technical perspective, with the near-term potential support of around 1,300.