Australia

Australian shares are set to edge lower following a dip on Wall Street, as traders wait for the US Federal Reserve interest rate decision on Wednesday. The Fed is widely expected to raise rates by three quarters of a percentage point.

ASX futures were down 74 points or 1.1% at 6740 as of 7:00am on Wednesday, pointing to a slip at the open.

Stocks fell and Treasury yields rose to multiyear highs Tuesday on expectations the Federal Reserve will unveil more forceful monetary tightening to curb inflation this week. The S&P 500 lost 1.1% while the Dow industrials and Nasdaq Composite retreated 1%.

All eyes are on the Fed, which is beginning a two-day policy meeting. At the end of the gathering Wednesday, the central bank is expected to raise its interest-rate target by three quarters of a percentage point to a range of 3% to 3.25%. Traders in fed-fund futures put a roughly 20% probability on a full percentage-point increase.

Recently, downbeat corporate updates from big businesses such as FedEx and Ford Motor have added to the gloom.

"The tone has definitely gotten a bit more pessimistic, and I do think we're going to see more of that," said Kristy Akullian, a senior strategist at BlackRock's iShares Investment Strategy. Ms. Akullian said more of the asset manager's clients have brought up shifting funds to bonds and away from stocks as bond yields rise.

In commodity markets, Brent crude oil slipped 1.16% to $US90.93 a barrel, gold edged down 0.65% to US$1,665.02.

In local bond markets, the yield on Australian 2 Year government bonds dropped to 3.41% while the 10 Year fell to 3.63%. Overseas, the yield on 2 Year US Treasury notes rose to 3.96% and the yield on the 10 Year US Treasury notes was up to 3.56%.

The Australian dollar hit 66.94 US cents down from the previous close of 67.23. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 101.94 

Asia

China stocks ended the session higher, recovering from days of losses amid weak regional equities performance and fears over a global recession. The benchmark Shanghai Composite Index rose 0.2% to settle at 3122.41, its first gain in nearly a week. The Shenzhen Composite Index was up by 1.1% at 2011.66 while the ChiNext Price Index added 0.7% to 2366.90. Electric-car makers, battery suppliers and battery-chemicals producers led the upturn, as the EV sector rebounded, following the industry's gains on Wall Street overnight. Tianqi Lithium jumped 8.3%, Ganfeng Lithium rose 3.4% and CATL was up by 1.8%.

Hong Kong's Hang Seng Index rose 1.2% to close at 18781.42, rebounding from a six-month low and tracking gains in the A-share market. The city's top official said the government aims to reduce inconvenience to inbound travelers, further lifting hopes of pandemic rules being eased. Wharf REIC advanced 3.5% and Cathay Pacific added 2.2%. Casino operators strengthened amid reports the central government is exploring measures that could support the tourism industry in Macau. Sands China and Galaxy Entertainment jumped 7.7% and 4.3%, respectively. Among laggards, Country Garden Holdings declined 2.6% after a downgrade by S&P Global Ratings.

Japanese stocks ended higher, led by gains in electronics and food stocks following recent selloffs caused by fears about further, aggressive tightening from the Fed. Kirin Holdings gained 3.2% and Renesas Electronics climbed 2.8%. The Nikkei Stock Average rose 0.4% to 27688.42. Investors are focused on economic data, including U.S. housing starts due later in the day, ahead of Fed's policy decision on Wednesday. USD/JPY was last at 143.42 compared with 143.20 as of Monday 5 p.m. Eastern Time. No trades were done for 10-year Japanese government bonds.

Europe

European stocks ended the day lower. The pan-European Stoxx Europe 600 is down 4.45 points or 1.09%, the German DAX is down 132.41 points or 1.03%, while the French CAC 40 is down 82.12 points or 1.35%.

Meanwhile, in London, the FTSE 100 closed down 0.6% on Tuesday as European markets reacted to Sweden's Riksbank hiking rates by 100 basis points.

"The size of the hike has shifted the focus back to tomorrow's Fed rate decision and the possibility that the U.S. central bank might do something similarly aggressive. This seems a stretch given that U.S. rates are already quite a bit higher than Swedish ones, however in this case discretion appears to be the better part of valor, and markets have ratcheted lower, as rates have gone higher," CMC Markets UK's chief market analyst Michael Hewson said.

Ocado shares closed the day down 9.6% after the online grocer and retail-technology specialist was downgraded by HSBC over concerns in regards to smaller basket sizes.

North America

The S&P 500 lost 1.1% while the Dow industrials and Nasdaq Composite retreated 1%. All eyes are on the Fed, which is beginning a two-day policy meeting. At the end of the gathering Wednesday, the central bank is expected to raise its interest-rate target by three quarters of a percentage point to a range of 3% to 3.25%. Traders in fed-fund futures put a roughly 20% probability on a full percentage-point increase.

Higher rates have pummeled markets in 2022, putting stock and bond prices into reverse after a multiyear run-up driven in part by low interest rates. Many investors are concerned that tighter central-bank policy, together with disruptions from Chinese Covid-19 lockdowns and the war in Ukraine, will push the US economy into a recession next year.

Recently, downbeat corporate updates from big businesses such as FedEx and Ford Motor have added to the gloom.

"The tone has definitely gotten a bit more pessimistic, and I do think we're going to see more of that," said Kristy Akullian, a senior strategist at BlackRock's iShares Investment Strategy. Ms. Akullian said more of the asset manager's clients have brought up shifting funds to bonds and away from stocks as bond yields rise.

Stock losses were broad into Tuesday afternoon, hitting all 11 S&P sectors. Ford shares dropped 12% a day after the auto maker warned that parts shortages and higher costs will hit earnings. Gap fell 3.2%. The Wall Street Journal reported that the apparel retailer will trim about 500 corporate jobs to cut costs.

Casino operators were among the few S&P stocks that notched gains on signs that loosening Covid-19 restrictions could improve tourism in Macau, an Asian gambling mecca. Wynn Resorts rose 2.9% and Las Vegas Sands gained 1.2%.

Fed officials have made clear they are willing to accept a recession if it is the price of slowing the pace of inflation. Data last week showed inflation remained strong, cementing expectations the central bank will keep raising rates.

"Markets remain convinced that the Fed would continue to act in a one-way fashion to any sort of inflation surprise," said John Roe, head of multiasset funds at Legal & General Investment Management.

The rise in yields has picked up pace in part because investors burned by previous climbs in yields have grown less willing to step in and buy Treasurys, he said, adding that money managers have lost confidence in where yields might peak. The Fed "has over the last few months reinforced just how much focus it has on short-term inflation," Mr. Roe said.

The surge in Treasury yields was echoed in foreign-government bonds as other major central banks step up their own efforts to control rising prices.

Sweden's Riksbank on Tuesday raised its benchmark rate by a full percentage point and signaled that it would end asset purchases by the end of the year to remove another leg of monetary stimulus. The Bank of England is expected to raise rates Thursday, following a similar move by the European Central Bank in early September.

"What we're seeing from global central banks is a recognition that inflation is a more difficult issue for them to tackle than they may have thought a month ago or a year ago," said Andrew Hollenhorst, chief U.S. economist at Citigroup.