US equity futures edged up while Japanese stocks reversed initial losses on Wednesday in cautious trading ahead of the Federal Reserve chief’s congressional testimony.
Key gauges in Australia and South Korea remained lower. Futures for Hong Kong fell earlier, while US-listed Chinese stocks suffered their biggest decline in three months amid wariness over Chinese assets, with Beijing so far failing to issue specific support measures and banks offering only modest rate cuts.
Economic bellwether FedEx Corp. added to the mixed picture, tumbling in extended US trading after its outlook fell short of analyst consensus estimates on weakened demand. The S&P 500 notched its first back-to-back losses in nearly four weeks Tuesday as trading resumed after a long holiday weekend.
Bonds gained in early Asia trading, following the lead from US Treasuries, with the yield on the 10-year Australian security dropping six basis points. Treasuries were little changed on Wednesday.
A gauge of dollar strength inched up after the greenback advanced against all of its Group-of-10 counterparts Tuesday except the yen. The Japanese currency weakened slightly on Wednesday.
Investors in US stocks are caught between fear of missing out and concerns markets have run too far, too fast as they contend with overblown valuations and hawkish signals from the Fed.
Fed Chair Jerome Powell is scheduled to give his semi-annual report to Congress on Wednesday, with Bloomberg Intelligence expecting a hawkish tone. While the policymakers kept interest rates unchanged at their meeting last week, their forecasts imply around two additional quarter-point rate hikes or one half-point increase.
“He will come on and try to remain hawkish,” Mahjabeen Zaman, head of FX research at ANZ Bank in Sydney, said on Bloomberg Television. She expects one more rate hike from the Fed while noting the risk of more increases. Looking longer term, Zaman sees downward pressure on the dollar after the Fed reaches its rates peak and for currencies more broadly to take their cues from growth differentials.
Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a note that “if a favorable soft landing does materialize, the Fed will have no incentive to cut rates, especially if labor markets are still relatively resilient.”
“Our skepticism around the sustainability of the rally in US market-cap weighted indexes stems primarily from continued investor belief that the Fed is bluffing on holding rates higher for longer,” she wrote.
Elsewhere, oil retreated, with global benchmark Brent settling below $76 a barrel, amid broad risk-off sentiment. Gold was little changed.
Key events this week:
- UK inflation data
- Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
- Chicago Fed President Austan Goolsbee speaks, Wednesday
- Eurozone consumer confidence, Thursday
- Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
- US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
- Fed’s Powell delivers testimony before the Senate Banking Committee, Thursday
- Cleveland Fed’s Loretta Mester speaks Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- Japan CPI, Friday
- US S&P Global Manufacturing PMI, Friday
- St. Louis Fed President James Bullard speaks, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose less than 0.1% as of 10:07 a.m. Tokyo time. The S&P 500 fell 0.5%
- Nasdaq 100 futures rose less than 0.1%. The Nasdaq 100 fell 0.1%
- Hang Seng Index futures fell 1.2%
- Japan’s Topix rose 0.3%
- Australia’s S&P/ASX 200 fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0912
- The Japanese yen fell 0.2% to 141.70 per dollar
- The offshore yuan fell 0.1% to 7.1924 per dollar
- The Australian dollar was little changed at $0.6779
Cryptocurrencies
- Bitcoin rose 2% to $28,723.56
- Ether rose 1.6% to $1,814.23
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.73%
- Japan’s 10-year yield declined one basis point to 0.375%
- Australia’s 10-year yield declined six basis points to 3.96%
Commodities
- West Texas Intermediate crude fell 0.2% to $71.04 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Cristin Flanagan.
