Asian stocks exhibited mixed performance on Wednesday, reacting to record highs in US equities and Federal Reserve Chairman Jerome Powell’s remarks on the economic outlook. MSCI’s Asia-Pacific index showed varied movements, with gains in Hong Kong and Japan contrasting with losses in Australia, South Korea, and mainland China. Futures for US and European equities edged upwards, reflecting cautious optimism in global markets.
China reported marginal increases in consumer prices for June, indicating persistent deflationary pressures that continue to hinder economic recovery efforts. Meanwhile, factory-gate prices remained stagnant in deflationary territory.
In the US, the S&P 500 extended its winning streak to six sessions, buoyed by expectations of Federal Reserve rate cuts amidst signs of a cooling job market. Powell refrained from specifying a timeline for rate adjustments but acknowledged mounting indicators of economic slowdown, particularly in employment figures. Short-term Treasury yields outperformed amid speculations of imminent policy easing.
Powell’s congressional testimony also addressed regulatory reforms affecting banks, suggesting potential adjustments to Basel III capital requirements, a development favoring Wall Street institutions.
Elsewhere, the Reserve Bank of New Zealand maintained interest rates unchanged, while Australian bond markets mirrored movements in US Treasuries. Bond traders anticipated shifts in China’s yield curves following reports of substantial securities reserves poised for sale by the central bank.
Market movements included declines in China Vanke Co. following a bleak earnings outlook and muted reactions to Samsung Electronics Co.’s labor strikes. Conversely, Baidu Inc. saw substantial gains on its robotaxi project’s popularity in China.
In the bond market, Treasuries rebounded after a successful auction of three-year notes, although European bond routs tempered overall market enthusiasm. Swap traders continued to price in expectations of future rate cuts in the US.
Currency markets remained subdued, with the dollar index stabilizing within a narrow range, while the yen weakened against the greenback. Emerging market currencies showed minimal fluctuations.
Treasury Secretary Janet Yellen echoed Powell’s sentiments on inflation dynamics, noting diminished labor market influences on price pressures during the pandemic recovery phase.
In Japan, major banks advocated for significant reductions in the Bank of Japan’s bond purchase programs during recent hearings, underscoring evolving market expectations.
The tech sector on Wall Street, dominated by artificial intelligence-driven firms, continued to attract investor attention despite concerns over stretched valuations and slowing earnings growth. Analysts cautioned on the sustainability of the tech rally, advising prudent profit-taking strategies amid robust sentiment towards AI stocks.
