China Stocks Eye Gains; S&P 500 Steady On Powell: Markets Wrap

(Bloomberg) — European stock futures rose and Asian stocks whipsawed Wednesday, following fresh highs for US equities as traders parsed comments from Federal Reserve Chairman Jerome Powell about the US economy.

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Contracts for the Euro Stoxx 50 gained around 0.2% in Asian trading, indicating a rebound for the region’s equities after three days of losses. Japanese stocks advanced, while those in China and Australia declined, leaving a gauge of the region’s shares little changed.

China’s consumer prices eked out another small gain in June, hovering near zero for a fifth month, a sign that deflationary pressures continue to impede an economic recovery. Factory-gate prices remained stuck in deflation.

US equity futures were also flat after the S&P 500 climbed for a sixth consecutive session on Tuesday, its longest winning streak since January, as traders held to bets the Fed will cut rates this year. The Nasdaq 100 also set a record.

Powell was careful not to offer a timeline for rate cuts in comments to lawmakers on Tuesday. However, he emphasized mounting signs of a cooling job market after government data showed a third straight month of rising unemployment. Shorter-term Treasuries outperformed on bets they would more likely benefit from policy easing.

In his comments, Powell said regulators are close to agreeing to change their plan to force big banks to hold significantly more capital – a major win for Wall Street lenders. The overhaul is tied to Basel III, an international accord that followed the 2008 financial crisis and is intended to prevent bank failures and another crunch.

The rhetoric “continued to move toward preparing the market for a cut in rates later this year,” said Michael Feroli at JPMorgan Chase & Co. “Powell largely stuck to the script when it came to the economy.”

Swap traders continued to project two rate cuts in 2024.

Elsewhere, the Reserve Bank of New Zealand held interest rates steady, and the statement was seen as dovish, sinking the kiwi.

Currencies otherwise were muted. A gauge of dollar strength was rangebound, while the yen weakened against the greenback. An index of emerging markets currencies was little changed Tuesday.

Bond traders are getting ready for China to start pushing back on record-low yields, with the central bank now armed with “hundreds of billions” of yuan of securities at its disposal to sell.

In corporate news, Baidu Inc. shares rose as much as 13% in Hong Kong on signs of growing popularity for its robotaxi Apollo Go in China. Taiwan Semiconductor Manufacturing Co.’s second-quarter sales were buoyed by the AI boom. Yokohama Rubber Co shares fell after reports the company is in talks to buy Goodyear Tire & Rubber Co.’s off-the-road tire business.

Elsewhere in Asia, Japan’s largest banks called on the Bank of Japan to make deep cuts to its monthly bond purchases during hearings of market participants at the central bank, according to people who attended.

Wall Street has tilted toward the tech sector to a historic degree, raising the stakes should the artificial intelligence-fueled rally falter. Valuations are stretched, while earnings growth is poised to slow from here.

That adds to uncertainty for investors betting that Big Tech’s rally will continue, according to Lisa Shalett at Morgan Stanley’s wealth management unit, who warns of “stretched momentum, weak breadth and complacency” in the market.

The rally in artificial-intelligence stocks may show little sign of flagging, but a historical review suggests it’s time to take profit in the biggest names, according to strategists at Citigroup Inc. led by Drew Pettit. Sentiment toward AI-exposed equities is the strongest since 2019 and free cash flow at the bulk of those firms is forecast to outstrip analyst expectations, they said.

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