Stocks tick up as oil falls, bonds stabilise ahead of Fed decision

By Gregor Stuart Hunter

SINGAPORE, Sept 16 (Reuters) - Stocks edged higher in Asia on Wednesday as a respite in the global bond selloff and a drop in oil prices steadied nerves ahead of a pivotal Federal Reserve decision later in the day.

After a shaky start, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.5%, snapping a four-day losing streak, with gains for Korean and Taiwanese shares leading the way. The Nikkei 225 rose 0.3%, while S&P 500 e-mini futures were 0.2% higher.

The yield on the U.S. 10-year Treasury bond was flat at 4.9938% after attempting to retest the 5% mark, having broken through that threshold on Tuesday for the first time in three years. The Federal Reserve will announce its latest policy decision later in the day, followed by a media conference by Fed Chair Kevin Warsh.

"We maintain our tactically cautious/neutral view into the Fed," JPMorgan analysts wrote, noting that the market consensus expectation is for a 25 basis-point rate hike accompanied by little forward guidance.

The meeting "could be a clearing event" for the market "to reset rate hike expectations," they added, but warned "inaction risks institutional credibility". If no hike materialises and bond yields extend their rally on higher inflation expectations, the bank anticipates the S&P 500 could move 1.25%-1.75% lower.

U.S. President Donald Trump has repeatedly stated a preference for lower interest rates, saying last month the U.S. will stop trading with countries with which it has a trade deficit if the Fed does not cut rates.

Traders have looked through these threats and believe that a hike from the Federal Reserve is almost assured, pricing an implied 93% probability of a 25-basis-point hike when it announces its policy decision, according to the CME Group's FedWatch tool, compared to a 61.2% chance a week ago. 

Overnight on Wall Street, the S&P 500 slumped 0.5%, marking its second consecutive day of declines as the yield on the 10-year Treasury bond hit its highest since 2007. 

"U.S. equity markets closed lower overnight as rising Treasury yields, another jump in crude and the polarised debate around pacing AI development left the market in a cautious mood," said Tony Sycamore, market analyst at IG in Sydney.

The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, edged down 0.1% to 99.601 after nearing a two-week high.

Oil prices slipped in Asian trade, with Brent crude futures down 0.6% at $108.13 a barrel after rising 2.9% on Tuesday as shipping industry sources said crude loadings at Saudi Arabia's Red Sea export hub of Yanbu had been suspended and Riyadh cancelled some cargo deliveries to European customers. 

Digital assets steadied from a rout after the U.S. Senate on Tuesday voted against advancing comprehensive cryptocurrency legislation backed by Trump. Bitcoin was off 0.1% at $75,821.94, while ether slipped 0.2% to $2,402.12.

(Reporting by Gregor Stuart Hunter; Editing by Sonali Paul, Christian Schmollinger and Shri Navaratnam)