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Asian stocks may get a fillip Wednesday from an easing rout in Chinese shares and a slide in oil, though investors also remain braced for volatility from Russias war in Ukraine and a looming Federal Reserve decision.

Futures for Japan, Hong Kong and Australia rose after tech stocks led a Wall Street rebound and U.S.-listed Chinese shares bounced from a deep selloff. Chinas equities have been under pressure on speculation that Beijings ties with Russia expose its companies to the risk of a U.S. backlash.

Crude slumped, dropping below $100 a barrel. Signals that Iran nuclear talks may resume pointed to the possibility of more supply. At the same time, Covid lockdowns in China may curb demand.

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Treasuries were mixed ahead of the Fed decision later Wednesday, with the 10-year yield edging up to 2.14%. A report that Saudi Arabia will

consider accepting yuan payments for oil sold to China boosted the latters currency.

A quarter-point Fed rate increase, the first since 2018, to fight high inflation is widely expected but theres less certainty beyond that. While markets expect a total of seven such moves in 2022, policy makers also have to factor in growth risks emanating from the war and the isolation of Russia in retaliation.

The confluence of events leading in to this meeting puts policy makers in a very unenviable position, Matt Rowe, executive director at Nomura Securities International Inc., said on Bloomberg Television. Its being publicly debated whether if you create a recession to push the number down to 2%, is that actually a policy error? he added, referring to inflation.

In the latest developments from the conflict, Ukraine and Russia are due to resume talks Wednesday. A key adviser to Ukrainian President Volodymyr Zelenskiy called the negotiations difficult but said there is room for compromise. In Russia, President Vladimir Putin said Ukraines leadership was not serious about resolving the conflict.

U.S. data showed producer-price inflation at 10%, underscoring inflationary pressures. Meanwhile, New York state manufacturing activity weakened considerably in early March. Taken together they hint at the Feds dilemma.

We will be closely watching the Feds dot plot, which we expect to signal five or six interest-rate hikes this year, more than Decembers projections but in line with market expectations, wrote Lauren Goodwin, portfolio strategist at New York Life Investments. A dot plot projecting more hiking would likely be a hawkish signal and could result in an earlier yield curve inversion. 

Wolfe Research Metals and Mining analyst Timna Tanners discusses her metals outlook with Bloomberg Markets Romaine Bostick, Taylor Riggs and Gina Martin Adams. Source: Bloomberg.

Here are some key events to watch this week:

  • EIA crude oil inventory report, Wednesday
  • FOMC rate decision and Fed Chair Jerome Powell news conference, Wednesday
  • Bank of England rate decision, Thursday
  • ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday
  • Bank of Japan rate decision, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 2.1%
  • The Nasdaq 100 rose 3.2%
  • Nikkei 225 futures climbed 1.3%
  • Hang Seng futures increased 3%
  • S&P/ASX 200 futures advanced 0.6%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%
  • The euro was at $1.0949
  • The Japanese yen was at 118.33 per dollar
  • The offshore yuan was at 6.3825 per dollar, up 0.2%

Bonds

  • The yield on 10-year Treasuries advanced one basis point to 2.14%

Commodities

  • West Texas Intermediate crude fell 6.4% to $96.44 a barrel
  • Gold lost 1.7% to $1,917.94 an ounce

With assistance by Rita Nazareth, Emily Barrett, and Sophie Caronello