Asian stocks rally as oil retreats, US Fed in spotlight

Asian shares rose as oil prices paused gains and markets turned to a US Federal Reserve meeting to see how policymakers will balance growth and inflation risks against ongoing geopolitical tensions in the Middle East.

While Israel intensified its attack by killing Iran’s security chief, Iran renewed its attacks on oil facilities in the United Arab Emirates.

A senior Iranian official said the new supreme leader has rejected offers to ease tensions conveyed by intermediaries, signaling that the war that has sparked a global oil shock will not end immediately.

Oil prices took a breather from recent gains on Wednesday despite the Strait of Hormuz remaining largely closed.

Brent crude futures fell one per cent to US$102.28 ($A143.99) per barrel, while US West Texas Intermediate crude fell 1.6 per cent.

That came as a relief for stock investors, as MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.2 percent. Japan’s Nikkei gained 2 percent.

Chinese blue chips rose 0.1 percent, while Hong Kong’s Hang Seng index rose 0.3 percent.

Natasha Kaneva, head of global commodities research at JPMorgan, said the apparent stability in Brent and WTI reflects a temporary buffer created by regional inventory overhangs, benchmark composition and policy interventions.

“If the strait does not reopen… Brent and WTI will eventually reprice as Atlantic basin stocks decline and the global market is forced to recover from a materially tighter supply level,” he said.

The United Arab Emirates could join a US-led effort to protect shipping in the Strait of Hormuz, but many Western countries have already turned down US President Donald Trump’s calls to send warships to escort oil tankers in the region.

Both S&P 500 futures and Nasdaq futures rose 0.2 percent after Wall Street gained overnight, boosted by strong earnings expectations for chipmaker Micron Technology. Investors will be watching for comments on chip shortages and pricing related to results to be announced later Wednesday.

After the Reserve Bank of Australia started a busy week for global central banks with an interest rate increase, all eyes turned to the Fed’s policy meeting later in the day.

Attention will be on the updated economic forecasts, particularly the “dot plot”, where there is a risk of not predicting any interest rate cuts this year.

The Fed is expected to keep its policy steady, but the debate will focus more on whether the Iran conflict will cripple economic growth, threaten more persistent inflation or create a confusing mix of economic slowdown and rising prices.

Fed Chairman Jerome Powell, who is expected to leave his post in May, will also hold a press conference and markets will be waiting for any clues as to whether he intends to remain on the Board of Governors as Fed Chairman once his term as chairman ends.

“Consensus still points to the median dot plot showing a 25 basis point cut for 2026 and is in line with current market prices,” IG analyst Tony Sycamore said.

“However, if the committee thinks the oil shock will lead to stickier inflation, there is a good chance that points will shift in a more hawkish direction, or even towards zero cuts.”

The Bank of Canada will also meet later Wednesday and no policy changes are expected. Markets are betting that the next move will be to the upside and that a rate hike will be fully priced in by the end of the year.

In foreign exchange markets, the US dollar took a back seat as the euro held on at $1.1539 after rising 0.3 percent overnight.

The Japanese yen has risen for two consecutive days to stabilize at 159 per dollar, moving away from the 160 level that has triggered official intervention in the past.

Treasuries rose slightly overnight, helped by a solid auction of 20-year Treasuries. The yield on 10-year Treasury bonds was steady at 4.2024 percent, falling two basis points overnight.

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