China Stocks Eye Gains; S&P 500 Steady On Powell: Markets Wrap

(Bloomberg) — Asian shares fluctuated on Wednesday following fresh highs for US equities as traders parsed comments from Federal Reserve Chairman Jerome Powell about the US economic picture.

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MSCI’s Asia-Pacific gauge slipped, though more stocks were up than down. Hong Kong and Japanese equities rose, while those in Australia, South Korea and mainland China fell. US and European equity futures inched higher.

China’s consumer prices eked out another small gain in June, hovering near zero for a fifth month, a sign that deflationary pressures continue to impede an economic recovery. Factory-gate prices remained stuck in deflation.

The S&P 500 advanced for a sixth consecutive session on Tuesday, its longest winning streak since January, as traders held to bets the Fed will cut rates this year. The Nasdaq 100 also set a record.

Powell was careful not to offer a timeline for rate cuts in comments to lawmakers on Tuesday. However, he emphasized mounting signs of a cooling job market after government data showed a third straight month of rising unemployment. Shorter-term Treasuries outperformed on bets they would more likely benefit from policy easing.

In his comments, Powell said regulators are close to agreeing to change their plan to force big banks to hold significantly more capital – a major win for Wall Street lenders. The overhaul is tied to Basel III, an international accord that followed the 2008 financial crisis and is intended to prevent bank failures and another crunch.

The rhetoric “continued to move toward preparing the market for a cut in rates later this year,” said Michael Feroli at JPMorgan Chase & Co. “Powell largely stuck to the script when it came to the economy.”

Elsewhere, the Reserve Bank of New Zealand held interest rates steady. Australian bonds fell in early trading, echoing moves in long-dated Treasuries.

Bond traders are getting ready for China to start pushing back on record-low yields, with the central bank now armed with “hundreds of billions” of yuan of securities at its disposal to sell.

China Vanke Co. stock fell after the homebuilder warned that losses grew substantially in the second quarter. Shares in Samsung Electronics Co were little changed after the company’s largest labor union declared an indefinite strike. The union is currently staging a three-day strike that began Monday.

Baidu Inc. shares rose as much as 11% in Hong Kong, following an 8.5% gain in the US-traded stock. The company’s robotaxi Apollo Go is gaining popularity in China.

Treasuries pared losses after a solid $58 billion sale of three-year notes, though a rout in European bonds kept a lid on the market. Swap traders continued to project two rate cuts in 2024.

Currencies held to muted moves. A gauge of dollar strength was rangebound, while the yen weakened against the greenback. An index of emerging markets currencies was little changed Tuesday.

Treasury Secretary Janet Yellen said the labor market is no longer driving inflation in the US economy to the extent it was earlier in the pandemic recovery, echoing earlier comments by Powell.

In Asia, Japan’s largest banks called on the Bank of Japan to make deep cuts to its monthly bond purchases during hearings of market participants at the central bank, according to people who attended.

Tech Rally

Wall Street has tilted toward the tech sector to a historic degree, raising the stakes should the artificial intelligence-fueled rally falter. Valuations are stretched, while earnings growth is poised to slow from here.

That adds to uncertainty for investors betting that Big Tech’s rally will continue, according to Lisa Shalett at Morgan Stanley’s wealth management unit, who warns of “stretched momentum, weak breadth and complacency” in the market.

The rally in artificial-intelligence stocks may show little sign of flagging, but a historical review suggests it’s time to take profit in the biggest names, according to strategists at Citigroup Inc. led by Drew Pettit. Sentiment toward AI-exposed equities is the strongest since 2019 and free cash flow at the bulk of those firms is forecast to outstrip analyst expectations, they said.

Key events this week:

  • Jerome Powell testifies to the House Financial Services Committee, Wednesday

  • Fed’s Austan Goolsbee, Michelle Bowman and Lisa Cook speak, Wednesday

  • US CPI, initial jobless claims, Thursday

  • Fed’s Raphael Bostic and Alberto Musalem speak, Thursday

  • China trade, Friday

  • University of Michigan consumer sentiment, US PPI, Friday

  • Citigroup, JPMorgan and Wells Fargo earnings, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures were little changed as of 11:12 a.m. Tokyo time

  • Nikkei 225 futures (OSE) rose 0.2%

  • Japan’s Topix rose 0.2%

  • Australia’s S&P/ASX 200 fell 0.4%

  • Hong Kong’s Hang Seng rose 0.8%

  • The Shanghai Composite fell 0.3%

  • Euro Stoxx 50 futures rose 0.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0814

  • The Japanese yen was little changed at 161.48 per dollar

  • The offshore yuan was little changed at 7.2914 per dollar

Cryptocurrencies

  • Bitcoin fell 0.3% to $57,736.7

  • Ether fell 0.5% to $3,055.47

Bonds

Commodities

  • West Texas Intermediate crude was little changed

  • Spot gold rose 0.1% to $2,367.61 an ounce

This story was produced with the assistance of Bloomberg Automation.

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