Asian markets are in a cautious mood as the countdown to the Federal Reserve's decision begins. The Fed is expected to deliver a hawkish rate cut on Wednesday, but the meeting could be one of the most contentious in recent history, with policymakers openly disagreeing on the easing of rates. Markets imply an 85% chance of a quarter-point reduction in the 3.75% to 4.0% funds rate, making a steady decision a significant event. A Reuters poll of 108 analysts found that only 19 predicted no change, with the rest expecting a cut. Michael Feroli, head of U.S. economics at JPMorgan, anticipates at least two dissents in favor of no action and a slim majority of FOMC participants indicating a December cut. The Federal Open Market Committee has not had three or more dissents at a meeting since 2019, and this has only occurred nine times since 1990. Feroli also predicts a January cut as insurance against a weakened labor market, followed by a lengthy policy pause. Central banks in Canada, Switzerland, and Australia are also meeting this week and are expected to hold steady. The Swiss National Bank might ease again to offset the strong franc but is already at 0% and reluctant to go negative. Economic data has led markets to abandon hopes of another easing from the Reserve Bank of Australia, even pricing in a rate hike for late 2026. Hopes for more Fed stimulus have supported equities, but the risk of a hawkish outlook on Wednesday has led to cautious trading. S&P 500 and Nasdaq futures were little changed early on. Earnings from Oracle and Broadcom this week will test the appetite for AI-related investments, while Costco will provide insights into consumer demand. In Asia, Japan's Nikkei dipped 0.3%, South Korean stocks eased 0.3%, and the broader MSCI Asia-Pacific index was off 0.1%. Chinese blue chips should take their cue from November trade data, which will offer fresh evidence on export performance. Bond markets are under pressure due to the risk of hawkish guidance from the Fed, and concerns about President Trump's attacks on Fed independence could lead to low rates and long-term inflation. Yields rose, helping the dollar steady after a decline. Oil prices were supported by the chance of lower interest rates and geopolitical uncertainty, while gold and silver reached new highs. Copper also hit all-time highs due to supply concerns and AI-related infrastructure investment.
