European stock futures climbed, and Asian markets experienced volatility on Wednesday following record highs in US equities. The moves came as investors digested remarks from Federal Reserve Chairman Jerome Powell on the US economy.
In Asian trading, contracts for the Euro Stoxx 50 indicated a 0.2% increase, signaling a rebound for regional equities after three days of losses. Japanese stocks advanced, while Chinese and Australian markets declined, leaving overall regional shares largely unchanged.
China reported a marginal uptick in consumer prices for June, marking the fifth consecutive month near zero, underscoring persistent deflationary pressures that hinder economic recovery. Factory-gate prices remained mired in deflationary territory.
US equity futures were flat after the S&P 500 extended its winning streak to six sessions on Tuesday, its longest since January. Market sentiment continued to lean towards expectations that the Fed will lower interest rates later this year. The Nasdaq 100 also reached new highs.
Powell refrained from outlining a specific timetable for rate cuts during his congressional testimony on Tuesday. He highlighted growing signs of a cooling job market following recent government data showing a third consecutive month of rising unemployment. Shorter-term Treasuries outperformed as markets anticipated potential policy easing benefits.
Powell also noted progress towards revising plans to require large banks to hold significantly more capital, a development favoring Wall Street lenders. This revision aligns with Basel III regulations designed to prevent bank failures in the wake of the 2008 financial crisis.
Analysts observed a continued market expectation for two rate cuts in 2024, as reflected in swap trader sentiment.
In New Zealand, the Reserve Bank maintained interest rates unchanged, with its accompanying statement seen as dovish, leading to a decline in the New Zealand dollar.
Currency markets were subdued overall, with the US dollar index trading within a narrow range, while the Japanese yen weakened against the dollar. Emerging market currencies showed little movement.
Bond traders prepared for potential adjustments by China to counter record-low yields, with the central bank reportedly holding significant securities reserves.
In corporate developments, Baidu Inc. shares surged up to 13% in Hong Kong on strong demand for its robotaxi service Apollo Go in China. Taiwan Semiconductor Manufacturing Co. reported robust second-quarter sales driven by the AI sector, while Yokohama Rubber Co. saw its shares decline amid reports of negotiations to acquire Goodyear Tire & Rubber Co.’s off-the-road tire business.
Meanwhile, Japan’s major banks advocated for substantial reductions in the Bank of Japan’s monthly bond purchases during discussions with central bank officials, according to sources.
On Wall Street, heightened concentration in the technology sector posed risks amid stretched valuations and an anticipated slowdown in earnings growth, according to Lisa Shalett of Morgan Stanley. Concerns persisted about the sustainability of the rally in artificial intelligence stocks, with strategists at Citigroup advising caution amid elevated sentiment levels and optimistic cash flow projections.
