Asian stocks could trade with limited gains ahead of today’s FOMC meeting

Asian stocks could trade with limited gains after a choppy price action ahead of today’s FOMC meeting. As growth worries continue to weigh on GDP projections, China’s COVID zero policy continues to induce caution in global growth forecasts as Beijing is to postpone school reopening for a minimum of a week after the Labour Day holidays.

The day’s major event is the Fed meeting, with traders largely expecting a rate hike by 50bps to 0.75-1.00%. The Committee is also set to announce its balance sheet reduction plans formally. All eyes will be on Fed Chair Powell during the press conference as traders will be gauging for guidance on the rate path, with desks looking at another 50bps hike at a minimum. Debate on whether the Fed will hike rates above neutral level into ‘tight’ policy, which the rates markets are pricing in for as soon as Q4 this year. The US interest rate forward curve is currently pricing with a conviction 50 bps hike for at least three upcoming meetings. Although a few FOMC voters have lauded a potential 75bps hike, it’s not seen as the consensus in the short-term curve and desks but remains a tail risk. If Powell keeps the possibility open for future meetings, markets will have to reprice the curve, and that would cause a hawkish reaction cross-asset, with long-duration sectors and EM being hit first. Today’s meeting has a tilt toward a hawkish pivot.