US and European equity futures and Asian stocks made small gains as investors awaited commentary from Federal Reserve Chair Jerome Powell later Tuesday.
(Bloomberg) — US and European equity futures and Asian stocks made small gains as investors awaited commentary from Federal Reserve Chair Jerome Powell later Tuesday.
A gauge of the region’s shares rose about 0.7%, trimming losses from the biggest two-day drop in four months, as investors weigh the chances of the Fed keeping a firm grip on monetary policy.
Some of the strongest gains Tuesday were in tech stocks listed in Hong Kong — providing a sharp contrast to the decline in US equities Monday, when the S&P 500 and the tech-heavy Nasdaq 100 both finished lower as bond yields rose. Baidu Inc. surged as much as 13% after affirming it will launch a ChatGPT-like bot in March.
Treasuries clawed back some of the two-day rout that was sparked by traders ramping up bets on future Fed tightening. The recent moves have taken the shine off the best start to a year for cross-asset returns since 1987.
In Australia, the currency jumped and bonds fell after the central bank raised its key rate to the highest in 10 years and said further hikes will be needed in the coming months to combat inflation. Australia’s benchmark stock index reversed course and fell 0.4%.
Investors are weighing whether Powell may emphasize that optimism for rate cuts later in 2023 is probably misplaced. Atlanta Fed President Raphael Bostic said Monday the strong jobs data on Friday raises the possibility that the central bank will need to increase interest rates to a higher peak than policy makers had previously expected.
Read: Bond Traders Quickly Come Around to Fed’s View on Peak for Rates
“Fed Chair Powell remains a big wild card every time he speaks,” said Chris Senyek at Wolfe Research. “Investors will be looking to see if he ‘walks back’ his very dovish tone from last Wednesday, particularly with respect to financial conditions and the US ‘disinflationary process.’ We still believe that the Fed will be ‘higher for longer’.”
The yen held most of its losses from Monday after broad gains in the dollar sent a gauge of the greenback up for a third day. Japan unexpectedly reported nominal wages jumped in December by the biggest margin in almost 26 years, stoking market bets that the central bank will adjust or back away from its stimulus program under a new governor.
Citigroup sees dollar strength as a key risk to the stock markets. “The view is very much that it’s going to be a difficult six to eight months for equity markets globally, not just in Asia,” Mohammed Apabhai, head of Asia-Pacific trading strategies at Citigroup, said on Bloomberg Television. “But if the dollar rallies back to anything more than what we are projecting, emerging market will get punished.”
There also seems to be no quick fix to the stock rout roiling Gautam Adani’s indebted conglomerate. The meltdown since US short-seller Hindenburg Research made fraud allegations against the ports-to-power group in a Jan. 24 report has wiped out $117 billion, or almost half of the market value of its companies. Adani has repeatedly denied the claims.
The air of caution in global markets is being reinforced by geopolitical concerns. The US is preparing to impose a 200% tariff on Russian-made aluminum, while the US started to recover some parts from the Chinese balloon that a fighter jet shot down off the coast of South Carolina. Biden administration officials said the US was still trying to figure out how much senior leaders in Beijing knew about the alleged spy mission.
Elsewhere, oil extended gains after Saudi Arabia unexpectedly raised its crude prices to Asia, signaling confidence in the demand outlook. Gold edged up.
Key events:
- US trade, Tuesday
- Fed Chair Jerome Powell interviewed by David Rubinstein at the Economic Club of Washington, Tuesday
- President Joe Biden delivers the State of the Union address before Congress, Tuesday
- US wholesale inventories, Wednesday
- New York Fed President John Williams is interviewed at Wall Street Journal live event, Wednesday
- US initial jobless claims, Thursday
- ECB President Christine Lagarde participates in EU leaders summit, Thursday
- Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday
- US University of Michigan consumer sentiment, Friday
- Fed’s Christopher Waller and Patrick Harker speak, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% as of 12:36 p.m. Tokyo time. The S&P 500 fell 0.6%
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 fell 0.9%
- Japan’s Topix rose 0.4%
- Australia’s S&P/ASX 200 fell 0.4%
- Hong Kong’s Hang Seng rose 1.2%
- The Shanghai Composite rose 0.3%
- Euro Stoxx 50 futures rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.1% to $1.0738
- The Japanese yen rose 0.3% to 132.29 per dollar
- The offshore yuan rose 0.2% to 6.7903 per dollar
- The Australian dollar rose 0.8% to $0.6941
Cryptocurrencies
- Bitcoin fell 0.2% to $22,873.3
- Ether fell 0.3% to $1,632.99
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.62%
- Japan’s 10-year yield was little changed at 0.49%
- Australia’s 10-year yield advanced 13 basis points to 3.59%
Commodities
- West Texas Intermediate crude rose 1% to $74.85 a barrel
- Spot gold rose 0.3% to $1,873.42 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
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