(Bloomberg) — Australian shares opened lower on Wednesday while Japanese shares were flat, while Chinese stock futures hinted at gains ahead of key economic data after U.S. shares hit fresh highs.
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The gains in Hong Kong futures contracts followed gains in mainland Chinese stocks and a benchmark U.S.-listed Chinese stock index on Tuesday.
The S&P 500 rose for a sixth straight day, its longest winning streak since January, as traders maintained their view that the Federal Reserve will cut interest rates this year. The Nasdaq 100 also set a new record.
Federal Reserve Chairman Jerome Powell was careful not to mention the timing of interest rate cuts in comments to lawmakers on Tuesday, but he highlighted growing signs of a cooling in the labor market after government data showed the unemployment rate rose for a third straight month. Australian government bonds fell in early trading, echoing longer-dated government bonds. Shorter-dated government bonds performed better on Tuesday on the view that they are likely to benefit from easier policy.
“Powell’s comments continue to prime the market for a rate cut this year,” said Michael Feroli of JPMorgan Chase & Co. “On the economy, Powell’s comments were largely in line with the playbook.”
In Asia, major Japanese banks called on the Bank of Japan to sharply reduce its monthly bond purchases at a hearing with central bank market participants, according to people attending the meeting.
Meanwhile, the Reserve Bank of New Zealand is expected to keep interest rates unchanged in its decision today. Traders are also watching China’s consumer and producer price releases. Bond traders are waiting for China to start pushing back on record-low interest rates, with the central bank now poised to sell “hundreds of billions” of yuan worth of bonds.
Investors will also be keeping a close eye on China Vanke Group, a major homebuilder, after it warned of a sharp widening of its second-quarter losses.
In his comments, Powell said regulators were close to agreeing to changes to a plan that would require big banks to significantly raise capital, a major win for Wall Street institutions. The reforms are linked to Basel III, an international agreement enacted after the 2008 financial crisis, and are intended to prevent bank failures and new financial crises.
U.S. Treasuries pared losses with a robust sale of $58 billion in three-year notes, but a sell-off in European bonds kept the market in check. Swaps traders continue to expect two rate cuts in 2024.
Currencies remained quiet. The dollar strength gauge remained range bound and the yen was flat after dropping against the greenback on Tuesday. The emerging market currency index was little changed on Tuesday.
Treasury Secretary Janet Yellen said the labor market is no longer driving inflation in the U.S. economy as much as it did early in the recovery from the pandemic, reiterating earlier comments by Powell.
Tech Rally
Wall Street is historically biased toward the technology sector, raising the risk that the artificial intelligence-driven stock rally will stall, with valuations skyrocketing and earnings growth expected to slow going forward.
That adds uncertainty to investors betting big tech companies will continue to rally, warning of “sluggish momentum, narrowness and complacency” in the market, according to Lisa Shalett, a senior adviser in Morgan Stanley’s asset management division.
The rally in artificial intelligence stocks shows few signs of slowing, but historical validation suggests it’s time to take profits on the big names, according to strategists at Citigroup Inc. led by Drew Pettit. Sentiment toward AI stocks is the strongest it’s been since 2019, and most of these companies are expected to generate more free cash flow than analysts expect, they say.
In commodity markets, West Texas Intermediate crude oil was up slightly early Wednesday, while gold was little changed.
Major events this week:
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China producer price index, consumer price index, Wednesday
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Rep. Jerome Powell will testify before the House Financial Services Committee on Wednesday.
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Federal Reserve Board members Austan Goolsbee, Michelle Bowman and Lisa Cook speak Wednesday
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U.S. Consumer Price Index, Initial Jobless Claims Thursday
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Federal Reserve Presidents Raphael Bostic and Alberto Mussallem to speak Thursday
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China trade, Friday
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University of Michigan Consumer Sentiment Index, U.S. Producer Price Index, Friday
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Citigroup, JPMorgan and Wells Fargo to report earnings on Friday
Some of the key market developments:
stock
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S&P 500 futures were little changed as of 9:07 a.m. Tokyo time.
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Japan’s TOPIX was little changed
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Australia’s S&P/ASX 200 fell 0.3%
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Euro Stoxx 50 futures fell 1.6%
currency
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The Bloomberg Dollar Spot Index was little changed.
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The euro was unchanged at $1.0813.
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The Japanese yen was almost unchanged at 161.38 yen to the dollar.
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The offshore yuan was little changed at 7.2904 yuan per dollar.
Cryptocurrency
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Bitcoin little changed at $57,872.01
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Ether fell 0.5% to $3,058.04.
Bonds
merchandise
This story was produced with assistance from Bloomberg Automation.
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