Federal Reserve chairman Jerome Powell emphasised mounting signs of a cooling job market after government data showed a third consecutive month of rising unemployment. MSCI’s Asia-Pacific gauge slipped, though more stocks were up than down. Hong Kong and Japanese equities rose, while those in Australia, South Korea and mainland China fell. US and European equity futures inched higher.
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.
The S&P 500 advanced 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 legislators on Tuesday. However, he emphasised mounting signs of a cooling job market after government data showed a third consecutive 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.”
Elsewhere, the Reserve Bank of New Zealand held interest rates steady. Australian bonds fell in early trading, echoing moves in long-dated Treasuries.
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.
China Vanke Co. stock fell after the homebuilder warned that losses grew substantially in the second quarter. Shares in Samsung Electronics Co were little changed after the company’s largest labour union declared an indefinite strike. The union is currently staging a three-day strike that began on Monday.
Baidu Inc. shares rose as much as 11% in Hong Kong, following an 8.5% gain in the US-traded stock. The company’s robotaxi Apollo Go is gaining popularity in China.
Treasuries pared losses after a solid $58 billion sale of three-year notes, though a rout in European bonds kept a lid on the market. Swap traders continued to project two rate cuts in 2024.
Currencies held to muted moves. A gauge of dollar strength was range-bound, while the yen weakened against the greenback. An index of emerging markets currencies was little changed on Tuesday.
Treasury Secretary Janet Yellen said the labour market is no longer driving inflation in the US economy to the extent it was earlier in the pandemic recovery, echoing earlier comments by Powell.
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.
Tech rally
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.