Asia stocks, dollar inch ahead as Fed meeting looms

Asian shares crept ahead and the dollar firmed on Monday in a cautious start to a week in which the U.S. Federal Reserve is likely to wrestle with its bloated balance sheet as part of a long reversal of super-cheap money worldwide.

While there was relief the weekend passed with no new provocation by North Korea, Pyongyang’s nuclear ambitions will be center stage when U.S. President Donald Trump addresses world leaders at the United Nations on Tuesday.

Some detail of Trump’s tax plans may also emerge this week, while elections in Germany and New Zealand will add extra political uncertainty to the mix.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.16 percent having already reached heights not visited since late 2007.

Australia's main index added 0.4 percent but Japan's Nikkei .N225 was closed for a holiday. E-Mini futures for the S&P 500 ESc1 rose 0.15 percent.

For markets, the main event will be the Fed’s policy meeting on Tuesday and Wednesday where it is likely to take another step toward normalization on what is rapidly becoming a global trend.

Canada has already hiked twice in recent months and the Bank of England shocked many last week by flagging its own increases.

“This week is all about global liquidity, with the Fed widely expected to announce the unwind of its balance sheet on Wednesday and the BoE now seemingly on the verge of a hike, potentially as soon as November,” ANZ analysts said in a note.

“With a backdrop of a number of central bank officials becoming increasingly hawkish, the stage is set for an unwind of market leverage and carry. We look for higher rates this week.”

Yields on U.S. 10-year Treasuries US10YT=RR jumped a hefty 14 basis points last week, but still trailed the UK where yields on 10-year paper GB10YT=RR surged 30 basis points.

The seismic shift in rates saw sterling hit its highest since the result of the Brexit vote and notch its best week in almost nine years against a currency basket.

Early Monday, the pound was a shade softer at $1.3575 GBP= but not far from the peak of $1.3615. The euro was steady at $1.1936 EUR=, sandwiched between support at $1.1836 and resistance at $1.2092.

The dollar held firm on the yen at 111.15 JPY=, with the Bank of Japan widely expected to maintain its massive asset buying campaign at a meeting this week.

Against a basket of currencies, the dollar was a fraction firmer at 91.955 .DXY having clambered up form a recent 2-1.2 year trough of 91.011.

The modest bounce in the dollar combined with all the talk of monetary tightening put gold on the defensive. The precious metal was off 0.2 percent at $1,315.79 an ounce XAU=.

Oil prices were hovering near five-month highs helped by forecasts for rising demand and the gradual restart of U.S. oil refineries. [O/R]

Brent crude LCOc1 was down 10 cents early Monday at $55.52 a barrel, but that followed gains of 3.3 percent last week. U.S. crude CLc1 eased 9 cents to $49.80 a barrel.