Asian markets exhibited mixed performances on Wednesday, reflecting the latest highs in US equities amid Federal Reserve Chairman Jerome Powell’s nuanced remarks on the American economic outlook. Hong Kong and Japanese stocks edged higher, contrasting with declines in Chinese and Australian markets, leaving regional shares broadly unchanged.
In China, consumer prices registered modest gains in June, hovering near zero for a fifth consecutive month, underscoring persistent deflationary pressures that continue to hinder economic recovery. Meanwhile, factory-gate prices remained mired in deflation.
On Wall Street, the S&P 500 extended its winning streak to six sessions, marking its longest since January, bolstered by expectations of forthcoming rate cuts by the Federal Reserve. Concurrently, the Nasdaq 100 reached new highs. Futures for US and European equities advanced during Asian trading hours.
While Powell refrained from specifying a timeline for rate cuts in his testimony to lawmakers on Tuesday, he highlighted mounting signs of labor market cooling following a third consecutive month of rising unemployment. This prompted a preference for shorter-term Treasuries amid anticipations of policy easing benefits.
Discussing regulatory developments, Powell indicated nearing consensus on revising plans to mandate larger capital reserves for major banks—a development seen favorably by Wall Street. This revision is tied to Basel III, an international framework introduced post-2008 financial crisis aimed at fortifying banks against failures and systemic risks.
Michael Feroli from JPMorgan Chase & Co noted that Powell’s rhetoric has increasingly aligned with market expectations for rate cuts later this year, affirming a cautious economic outlook.
Elsewhere, the Reserve Bank of New Zealand opted to maintain interest rates unchanged, with its dovish stance weighing on the kiwi dollar. Currency movements were muted overall, with the dollar index exhibiting limited fluctuations while the yen weakened marginally against the greenback. Emerging market currencies showed little change on Tuesday.
Bond markets anticipated potential adjustments in Chinese yields amid indications that the central bank may intervene to counter record-low yields, armed with significant securities reserves.
In corporate news, Baidu Inc. saw its Hong Kong-listed shares surge up to 13%, buoyed by growing adoption of its robotaxi service, Apollo Go, in China. Conversely, Yokohama Rubber Co. shares dipped following reports of negotiations to acquire Goodyear Tire & Rubber Co.’s off-the-road tire business.
Meanwhile in Japan, major banks urged the Bank of Japan to substantially reduce its monthly bond purchases during recent hearings, reflecting market participants’ sentiments.
Looking ahead, concerns over stretched valuations and decelerating earnings growth in the tech sector loom large for Wall Street, particularly amid a historic reliance on artificial intelligence-driven gains. Lisa Shalett from Morgan Stanley’s wealth management unit warned of market complacency and cautioned investors about the potential vulnerability of Big Tech stocks.
Although sentiment towards AI-exposed equities remains robust, strategists at Citigroup Inc., led by Drew Pettit, suggested that current levels warrant prudence, noting historical trends indicating a possible peak in the sector.
This comprehensive update underscores the nuanced landscape shaping global markets amid evolving economic indicators and corporate dynamics.
