The market awaits Walsh's debut, Asia-Pacific stocks close higher, SK Hynix hits another record high, oil prices fall to a March low, and the bond market rises.

The market awaits Walsh's debut, Asia-Pacific stocks close higher, SK Hynix hits another record high, oil prices fall to a March low, and the bond market rises.

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Global bond markets strengthened, and the decline in oil prices extended to the longest streak in nearly ten months. The Federal Reserve holds its first policy meeting since new Chair Warsh took office, with investors seeking new clues about the trajectory of global interest rates.

Brent crude fell below $79 per barrel, recording a cumulative decline of 15% over four trading days to a more than three-month low. The market is betting that a US-Iran agreement will reopen the Strait of Hormuz, with expectations of a significant supply release dragging down oil prices and driving down bond yields. Benchmark 10-year government bond yields in Australia and Japan dropped at least 5 basis points, while the US 10-year Treasury yield edged down 1 basis point, hovering near a one-month low. Meanwhile, S&P 500 futures rose 0.2%. Previously, a pullback in semiconductor stocks weighed on the US market on Tuesday, sending the Nasdaq 100 Index down nearly 2%. Asian stock indices rose 0.4%, marking a fourth consecutive day of gains. SK Hynix closed up nearly 6%, hitting a new record high.

Warsh's communication style on policy is the market's biggest focal point. Bloomberg Economics expects that Warsh will break with convention by not publicly submitting individual rate dot plot projections, meaning the Fed’s communication with the market could undergo systemic changes.

“In the past 48 hours, the overall environment has actually tilted more dovish—the expectation of reopening Hormuz has sharply reduced oil prices, providing real disinflationary impetus,” said Billy Leung, investment strategist at Global X Management. “But the market won't get ahead of itself, and will wait to hear directly from Warsh.”

Nikkei 225 closed up 0.7% at 69,902.25. Japan’s TOPIX closed up 0.6% at 4,013.23. South Korea’s KOSPI closed up 1.6% at 8,864.24. SK Hynix closed up nearly 6% at a new record high.S&P 500 futures rose 0.2%.The US dollar index was little changed.The US 10-year Treasury yield was little changed at 4.43%.Benchmark 10-year government bond yields in Australia and Japan dropped at least 5 basis points.Brent crude fell below $79 per barrel, down a cumulative 15% in four sessions, hitting a more than three-month low.Gold maintained its strength, rising more than 6% in the past four trading days.

Sharp Drop in Oil Prices Reshapes Rate Expectations

Brent crude dropped 15% in four trading sessions, falling below $79 per barrel to its lowest level in over three months, driven primarily by expectations of a US-Iran agreement to reopen the Strait of Hormuz. According to reports, the US and Iran are preparing to formally sign a memorandum of understanding in Switzerland on June 19.

The decline in oil prices is prompting investors to reassess global interest rate paths. Byron Anderson, Head of Fixed Income at Laffer Tengler Investments, said, "If the war truly ends and oil flows freely, yields will be pushed down in the short term. Once energy-driven inflation fades, rate hike expectations will also collapse." The firm manages over $1.7 billion in assets.

However, several European governments, energy investors, and shipping companies remain cautious about the speed with which the Strait of Hormuz can return to its pre-war state of normal passage.

Warsh Chairs First Meeting, Forward Guidance Faces Uncertainty

Of all the major central bank meetings this week, only the Bank of Japan is expected to hike rates as planned; most developed market central banks, including the Federal Reserve, are expected to leave policy rates unchanged. The market's main focus is on the policy outlook under Warsh’s leadership.

Bloomberg Economics notes that Warsh may refrain from submitting individual rate forecasts to the public, breaking a precedent set since the Bernanke era. Anderson stated, “The biggest uncertainty is whether Warsh will advance balance sheet reduction, and whether he will end the Fed’s forward guidance.”

Uncertainty over the Fed's interest rate path has led to intense option market betting, with trades covering both rate cuts and a range of rate hikes, showing significant divergence. Wall Street strategists are also contradictory: US asset manager PGIM expects the Fed to raise rates three times this year; Citi’s Andrew Hollenhorst thinks the Fed will cut rates; BNP Paribas forecasts three hikes starting in December.

Dollar’s Resilience Under Pressure, Gold Strengthens

The US dollar index is little changed, but Bloomberg strategist Garfield Reynolds warned its resilience is at risk. “The US-Iran war previously caused oil to spike, driving the dollar’s strong rebound. However, so far this week, despite steep declines in oil, the dollar has only slightly softened. If the Fed signals a more dovish tone at Wednesday’s meeting, this resilience may falter,” he wrote in an MLIV Asia team report. Gold remains strong, gaining more than 6% over the past four trading days.

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