Asian stocks fell along with European equity futures as investors trimmed their positions to reduce risks ahead of the Federal Reserve’s rate decision.
(Bloomberg) — Asian stocks fell along with European equity futures as investors trimmed their positions to reduce risks ahead of the Federal Reserve’s rate decision.
Hong Kong stocks declined, with technology shares falling over 1%. Equities were also lower in Japan and South Korea. A gauge of Australian stocks advanced after quarterly inflation came in slower than expected while futures contracts on US shares were little changed.
In the approach to the Fed’s decision, strong consumer confidence data bolstered the soft-landing narrative for the US economy — while suggesting policymakers aren’t done with their inflation fight yet. Rates on swap contracts continued to price in a quarter percentage-point Fed hike later on Wednesday, with some additional increase factored in by year-end as well.
“With recent economic data seemingly bolstering the chances of a soft landing, the FOMC is unlikely to rock the boat,” said Anna Wong, chief US economist at Bloomberg Economics.
Big tech led equity gains in the US on Tuesday, with traders counting on the earnings season to see whether the enthusiasm around artificial intelligence will justify this year’s market advance.
The S&P 500 closed at its highest since April 2022, the Nasdaq 100 outperformed and the Dow Jones Industrial Average saw its 12th straight advance — the longest winning run in over six years — after the Conference Board’s US consumer confidence index climbed to a two-year high. Google’s parent Alphabet Inc. reported revenue that beat analysts’ expectations, while Microsoft Corp. posted tepid sales growth.
As Chinese equities fell, policy support details from Beijing are soon needed to bolster fragile sentiment, according to Morgan Stanley strategists. A Politburo meeting earlier in the week, which promised more support for the economy, drove a rally Tuesday.
The dollar inched up, while yields on the two-year Treasury, which are more sensitive to imminent Fed moves, were mostly unchanged.
The front-end rates may decline significantly if Fed Chair Jerome Powell even subtly acknowledges that inflation is now less of a problem, strategists at DBS Bank Ltd. in Singapore, including Eugene Leow, wrote in a note. “If there are any hints that inflation is going in the right direction or that the inflation rate is near target, it could easily be interpreted dovish,” they said.
The Australian dollar dropped as inflation data strengthened bets for the nation’s central bank to pause interest rate hikes again next week.
Earnings Tests
There are so many bulls in the US stock market that any disappointment on the economy or earnings poses a risk to the rally, according to Citigroup Inc. strategists. Investor exposure to the S&P 500 remains extended and one-sided, even after bullish momentum has waned in recent weeks, a team including Chris Montagu said.
Given that Wall Street had set a low bar coming into the reporting season, roughly 80% of the companies have thus far beaten profit estimates, according to data compiled by Bloomberg.
Meanwhile on the earnings front in Europe, both Deutsche Bank AG and Banco Santander SA reported results for the second quarter that beat the average analyst estimates amid higher interest rate environment.
Elsewhere, oil fell Wednesday after recent gains amid tighter supplies and optimism that China’s government will boost the country’s economy. Gold was little changed.
Key events this week:
- US new home sales, Wednesday
- FOMC rate decision, Fed Chair Powell news conference, Wednesday
- China industrial profits, Thursday
- ECB rate decision, Thursday
- US GDP, durable goods orders, initial jobless claims, wholesale inventories, Thursday
- Japan Tokyo CPI, Friday
- BOJ rate decision, Friday
- Eurozone economic confidence, consumer confidence, Friday
- US consumer income, employment cost index, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 6:52 a.m. London time. The S&P 500 rose 0.3%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 rose 0.7%
- Japan’s Topix was little changed
- Australia’s S&P/ASX 200 rose 0.7%
- Hong Kong’s Hang Seng fell 0.7%
- The Shanghai Composite fell 0.4%
- Euro Stoxx 50 futures fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1058
- The Japanese yen was little changed at 141.03 per dollar
- The offshore yuan fell 0.3% to 7.1584 per dollar
- The Australian dollar fell 0.4% to $0.6764
- The British pound was little changed at $1.2898
Cryptocurrencies
- Bitcoin rose 0.1% to $29,265.21
- Ether fell 0.2% to $1,859.06
Bonds
- The yield on 10-year Treasuries was little changed at 3.88%
- Japan’s 10-year yield declined one basis point to 0.450%
- Australia’s 10-year yield declined one basis point to 4.01%
Commodities
- West Texas Intermediate crude fell 0.6% to $79.15 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller.
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