SYDNEY: Asian shares climbed on Wednesday, led by Chinese stocks on reopening hopes, while the dollar sagged as investors braced for the US Federal Reserve's policy decision later in the day, with many hoping for signs of a slowdown in future rate hikes.
European markets looked set to extend the cautious optimism, with the pan-region Euro Stoxx 50 futures up 0.5 per cent. US S&P 500 futures edged up 0.3 per cent while the Nasdaq futures rose 0.4 per cent.
The world's biggest central bank is due to release its policy statement at 2pm EDT (1800 GMT) on Wednesday, with investors set to closely scrutinise the statement and comments from Fed Chair Jerome Powell for any signal that policymakers are contemplating tempering rate hikes.
Markets widely expect the Fed to raise its benchmark overnight interest rate by 75 basis points (bps) to a range of 3.75 per cent to 4.00 per cent, the fourth such increase in a row.
However, traders are split on the size of the hike in December, with futures market pricing in a 44.5 per cent probability of a 50-bps increase, according to CME's Fed tool.
"We suspect Chair Powell will try very hard to avoid saying anything that might be misconstrued as a signal that the inevitable step down in the size of tightening is a pivot toward the end of the tightening cycle," said Kevin Cummins, chief US economist at NatWest Markets.
"Given that the inflation-related data have yet to show any signs of any moderation, we lean a bit more toward officials holding off from signalling they are reducing the size of hikes just yet."
Cummins expects the Fed to step down to a 50 bps hike in December.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.8 per cent after wobbling earlier in the day, with Chinese bluechips and Hong Kong stocks reversing losses on hopes that China will ease its tough zero-COVID restrictions.
An unverified note circulating on social media on Tuesday that China was planning a reopening from strict COVID curbs in March triggered a sharp rebound following last month's savage selling. But quarantines and business disruptions in China are surging again and some analysts expect no major policy shifts until well into next year or even 2024.
Hong Kong is holding an investment summit on Wednesday to rebuild the COVID-ravaged city's image as the region's financial hub, with Chief Executive John Lee pledging it would continue working towards lifting COVID curbs.
Chinese policymakers also reaffirmed their support for Hong Kong and welcomed foreign investors to the city. Hang Seng index surged 2.5 per cent, after a whopping 5.2 per cent in the previous session.
Japan's Nikkei lost 0.1 per cent.
Overnight, a survey showed US job openings unexpectedly rose in September, suggesting that demand for labour remains strong despite rate hikes. That sparked a reversal in Treasury yields and lifted market bets on interest rates to above 5 per cent next year.
US stocks closed lower, with the Dow Jones Industrial Average slipping 0.24 per cent, the S&P 500 shedding 0.41 per cent and the Nasdaq Composite falling 0.89 per cent.
In the currencies market, the dollar eased 0.2 per cent against a basket of major currencies. It fell 0.5% against the Japanese yen to 147.6 yen amid fears of intervention from authorities and thin liquidity.
Bank of Japan Governor Haruhiko Kuroda said on Wednesday a tweak to the central bank's yield curve control policy, which has contributed to the weakness in the yen, could become a future option.
The safe-haven greenback gave up some of the rapid gains this year in October on speculation the Fed might indicate a slowdown in its aggressive tightening campaign.
The dollar's retreat in foreign exchange markets is temporary, according to a Reuters poll of currency strategists, who said the greenback still had enough strength left to reclaim or surpass its recent highs and resume its relentless rise.
"In the Fed's view, putting the US into a recession is still a lesser evil than not tackling entrenched price pressures," said Chris Weston, head of research at Pepperstone.
"My own view is the risks are skewed for a hawkish reaction – USD higher, but I will recognise the moves in rates suggests the market is largely positioned for this outcome."
US Treasury yields were largely steady on Wednesday after reversing much of the losses overnight on the unexpected strength in the jobs data.
The yield on benchmark ten-year notes was little changed at 4.0422 per cent while the yield on two-year notes eased 4 basis points to 4.5157 per cent.
In commodities, oil climbed after industry data showed a surprise drop in US crude stockpiles, suggesting demand is holding up.
US crude oil futures rose 1.4 per cent to US$89.65 per barrel, while Brent crude futures was up 1.2 per cent at US$95.82.
Gold was slightly higher, with spot price trading at F$$1649.72 per ounce.