Asian markets are in a cautious mood as the countdown to the Federal Reserve's decision looms. The Fed is expected to deliver a hawkish rate cut on Wednesday, but the meeting could be one of the most contentious in recent memory, with some policymakers openly opposing an easing. 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 shock. A Reuters poll of 108 analysts found only 19 tipping no change, with the rest predicting a cut. Michael Feroli, head of U.S. economics at JPMorgan, expects at least two dissents in favor of no action and a slim majority of FOMC participants to indicate a December cut. The Federal Open Market Committee hasn't had three or more dissents at a meeting since 2019, and this has only happened nine times since 1990. Feroli also predicts a January cut as insurance against a sustained labor market weakness, 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 franc's strength 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 in recent weeks, 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% after a 0.5% gain last week, South Korean stocks eased 0.3% after a 4.4% jump, 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 Donald Trump's attacks on Fed independence could lead to low rates and long-term inflation. 10-year yields were slightly higher at 4.146%, having climbed 9 basis points last week. The rise in yields has helped the dollar steady after two weeks of decline. Oil prices are supported by the chance of lower interest rates and geopolitical uncertainty, while gold and silver are near their peaks. Copper is at all-time highs due to supply concerns and AI-related infrastructure investment.
