Asian Stocks Rally as Oil Retreats, Fed Policy Meeting in
Stocks up on lower oil and AI optimism, Fed in spotlight
Market Movements and Key Drivers
By Stella Qiu and Lucy Raitano
European and Asian Equities Respond to Oil and AI Developments
SYDNEY/LONDON, March 18 (Reuters) – European shares rose for a third day on Wednesday as easing oil prices offered relief ahead of a U.S. Federal Reserve meeting that could give investors clues on how policymakers are weighing growth and inflation risks amid the Middle East conflict.
Some renewed optimism around artificial intelligence stocks also lifted sentiment.
Middle East Conflict and Oil Price Dynamics
Focus remained on the conflict in the Middle East, with Israel intensifying its offensive by killing Iran’s security chief and Iran striking oil facilities in the United Arab Emirates. A senior Iranian official said the new supreme leader had rejected de-escalation offers, signalling no quick end to a war that has triggered a global oil shock.
Oil prices eased after Iraq and Kurdish authorities agreed to resume exports via Turkey’s Ceyhan port, though the Strait of Hormuz remained largely closed. Brent crude futures fell 0.2% to $102.93 a barrel, while U.S. West Texas Intermediate eased 1.7% to $94.5.
The pullback bolstered equities. Europe’s STOXX 600 gained 0.6%, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.8% earlier.
Expert Insights on Oil and Market Sentiment
“There is a renewed optimism around the potential for some cargo to get through the Strait of Hormuz, as well as the artificial intelligence theme underpinning some renewed risk appetite,” said Rebekah McMillan, associate portfolio manager, multi asset, at Neuberger.
Natasha Kaneva, head of global commodities research at JPMorgan, said apparent stability in Brent and WTI reflected a temporary buffer created by regional inventory overhang, benchmark composition and policy intervention.
“If the Strait does not reopen … Brent and WTI will ultimately reprice higher as Atlantic basin inventories are drawn down and the global market is forced to clear at a materially tighter supply level,” she said.
AI Optimism and Tech Sector Performance
S&P 500 futures rose 0.5% and Nasdaq futures gained 0.7%, supported by expectations of strong earnings from chipmaker Micron Technology due later on Wednesday, with investors awaiting comments on chip shortages and pricing.
Sentiment was also lifted by reports that Nvidia had won Chinese approval to sell its second-most-powerful AI chips. Earlier this week, Nvidia CEO Jensen Huang said revenue from its AI chips could reach at least $1 trillion through 2027.
Central Banks in Focus
Upcoming Fed Decision and Market Expectations
FOCUS TURNS TO FED AND POWELL
Investors are bracing for a crowded run of central bank decisions, with the Fed, Bank of Canada, European Central Bank, Bank of England and Swiss National Bank all meeting within 48 hours.
All eyes are on the Fed’s decision later on Wednesday, with attention on updated economic forecasts – particularly policymakers’ “dot plot” of rate projections – where the risk is that they may no longer forecast any rate cuts this year.
The Fed is expected to hold policy steady, but the debate now centres on whether the Iran conflict threatens slower growth, more persistent inflation, or a combination of both.
Fed Chair Jerome Powell will hold a press conference, with markets also watching for any signal on whether he plans to remain on the board once his term as chair ends in May.
Analyst Perspectives on Rate Projections
“Consensus still points to the median dot plot showing one 25-basis-point cut for 2026, aligning with current market pricing,” said IG analyst Tony Sycamore.
“That said, there’s a decent chance the dots could shift more hawkish, perhaps even to zero cuts, if the committee views the oil shock as leading to stickier inflation.”
Other Central Bank Meetings and Currency Markets
The Bank of Canada also meets on Wednesday, with markets pricing no change in policy and its next move a hike by year-end.
The ECB meets on Thursday, with Europe’s energy dependence making the latest shock more consequential than for the U.S.
“We don’t think that the ECB will allude to hikes,” said Neuberger’s McMillan.
“Now the market has shifted to pricing a hike this year … we don’t think that they will go down that route yet, but really what needs to be seen is the duration and the extent to which oil and gas prices remain elevated, and really how that feeds into the inflation outlook for Europe,” she said.
In currency markets, the euro held at $1.153 after rising 0.3% overnight. The U.S. dollar was steady at 158.9 yen.
Bond Markets and Yield Movements
U.S. Treasuries extended gains after a solid 20-year bond auction. Yields on 10-year notes fell 2 basis points to 4.1790%, their third straight decline, pulling back from a recent peak of 4.29%. Benchmark euro zone yields were also down 2 basis points at 2.88%.
(Reporting by Lucy Raitano and Stella Qiu. Editing by Christopher Cushing and Mark Potter)
