Asia-Pacific Markets Cautious Ahead of Fed; Oil Steady, Crypto Weighed

Highlights:

• Oil stayed close to recent peaks after API private data indicated stockpiles increased for crude, gasoline and distillates, ahead of Wednesday's official US government numbers.
• A coalition led by Saudi Arabia said it stopped a Houthi drone before it could breach restricted airspace near Mecca. The coalition described the security of the two holy mosques as a "red line" and cautioned it would take additional actions against the group.
• Japan's July machinery orders missed expectations, and the August trade deficit came in wider than predicted, casting caution on the growth and capital expenditure outlook. The yen weakened temporarily after the data but then recovered to trade nearly flat.
• Major currencies were subdued ahead of the Federal Open Market Committee's decision later today, as markets broadly anticipate a rate increase.
• Equity markets in Japan and South Korea traded within tight, cautious bands as traders awaited the FOMC result.
• Crypto markets faced selling pressure after the US Senate failed to move the Clarity Act forward in a cloture vote, meaning crypto regulation will remain under current SEC and CFTC rulemaking instead of a single federal framework. Bitcoin extended its decline on the news, though the outcome had been widely expected.

On Tuesday, oil prices remained near recent highs as private data from the American Petroleum Institute indicated increases in inventories of crude, gasoline, and distillates, ahead of the official US government report due Wednesday morning.

In the Middle East, a coalition led by Saudi Arabia reported that it intercepted a Houthi drone before it could enter restricted airspace around Mecca. The coalition called protecting the two holy mosques a 'red line' and stated it would take appropriate actions against the group.

Turning to data, Japan's machinery orders for July came in below expectations, and the nation's August trade deficit widened more than anticipated as imports grew faster than exports. These numbers injected caution into Japan's growth and capex outlook. The yen weakened briefly after the release but later bounced back to trade nearly unchanged.

Major currency pairs traded within a subdued range ahead of the Federal Open Market Committee decision, as markets broadly price in a rate hike. Likewise, equities in Japan and South Korea moved in narrow, cautious ranges as investors awaited the FOMC outcome.

Crypto markets weakened on Tuesday after US developments. The Senate did not advance the Clarity Act via a cloture vote, which prevented establishing a unified federal regulatory framework for crypto, leaving oversight under current SEC and CFTC rulemaking. Bitcoin's losses deepened on the news, although markets had largely anticipated the outcome.

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