Asia ready for Fed hike, nervous on rate outlook | Reuters

By Wayne Cole | SYDNEY SYDNEY Asia shares trailed Wall Street higher on Wednesday while the U.S. dollar held steady, with markets certain the Federal Reserve will raise rates for the first time in a year but less sure what it might signal for policy in 2017. Australia led the early going with gains of 0.4 percent , while Nikkei futures NKc1 pointed to a firm start for Japanese stocks. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.1 percent.All three major U.S. stock indexes hit records and the Dow ended fewer than 100 points from the magical 20,000 mark. The rally was again driven by speculation that a Trump Administration will implement more debt-financed fiscal stimulus and cut regulation.Bank of America Merrill Lynch’s latest survey of investors found expectations of global growth at 19-month highs and inflation at the second highest percentage in 12 years.Fund managers were the most optimistic about corporate profits in more than six years and allocations to bank stocks surged to a record.The Dow .DJI duly rose 0.58 percent, while the S&P 500 .SPX gained 0.65 percent and the Nasdaq .IXIC 0.95 percent. Tech stocks also joined the party as Apple (AAPL.O) climbed 1.7 percent and Amazon (AMZN.O) 1.9 percent. The outcome of the Fed’s policy meeting will be announced at 1900 GMT, followed by Chair Janet Yellen’s news conference half an hour later.A quarter point move is fully priced in, as are two more hikes next year. Any hint the Fed may move faster than that would likely hurt emerging markets and send the dollar higher.Markets are focused on the Fed’s economic and rate “dot” plots for a sense of how policymakers think Trump’s policies will affect growth and inflation. “As most FOMC participants are likely to wait for more specifics on Trump’s fiscal policy initiatives before formally altering their forecasts, markets may be disappointed by the lack of additional insight provided,” said Michelle Girard, chief U.S. economist at RBSM. “We expect most participants will continue to see two to three rate hikes as appropriate in 2017.“Treasuries have already moved to price in a rate hike and more, with two-year yields reaching ground last trod in April 2010 at 1.18 percent US2YT=RR.In contrast, the European Central Bank only last week extended its asset buying campaign and moved to purchase more short-term debt. As a result, the spread between U.S. and German two-year yields is now the widest since late 2005, with Treasuries offering a mouth-watering premium of 191 basis points.The gap kept the euro on the defensive at $1.0625 EUR=, not far from the recent 20-month trough at $1.0505. The dollar was likewise steady on the yen at 115.22 JPY= and against a basket of currencies at 101.060 .DXY.Bulk commodities from iron ore to coal have also benefited from the reflation trade, combined with signs of stronger growth in China. Again, any hint the Fed might step up the pace of tightening could undo some of those gains.Oil ran into profit-taking after the American Petroleum Institute said late on Tuesday that crude stocks unexpectedly rose by 4.7 million barrels.U.S. crude CLc1 futures, which hit a high of $53.41 on Tuesday, were down 49 cents at $52.49 a barrel. Brent crude LCOc1 was last quoted down 46 cents at $55.23. (Reporting by Wayne Cole; Editing by Eric Meijer)

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