Shares in Australia and Japan rose as did Hong Kong equity futures following sharp declines on Tuesday. US equity futures dropped after the S&P 500 rose 1% and the tech-heavy Nasdaq 100 advanced 1.6% Tuesday. Chipmakers were among the market leaders with Nvidia Corp. extending a five-day rally to 14%.
China’s equity market remained in focus. An index of US-listed Chinese shares fell 6.9% overnight as concerns mounted that the latest burst of stimulus may be insufficient to convince investors of a sustainable rally in the country’s equity market. A news report that cited Premier Li Qiang late Tuesday indicated China needs to introduce policies to stablize growth and expectations, in a further sign Beijing is attempting to build confidence among investors.
Treasuries were little changed after steadying Tuesday following a run of selling in the prior four sessions, amplified by last week’s US jobs data that weighed on rate-cut expectations. The US 10-year yield fell one basis point to just above 4%, while front-end yields fell by a sharper margin as investors parsed comments from Federal Reserve officials.
Fed Bank of Boston President Susan Collins noted that rate cuts should be careful and data-based. Her Atlanta counterpart Raphael Bostic said while risks to inflation have come down, threats to the labor market have risen, though the economy is still strong. Governor Adriana Kugler said officials should keep the focus on bringing inflation to target, with a “balanced approach” that avoids a slowdown in jobs.
“The US data is not so strong that the Federal Reserve’s contribution to the global rate-cutting cycle looks set to end,” said Mark Haefele at UBS Global Wealth Management. “We therefore maintain our conviction for investors to position for lower rates.”Oil clawed back some gains early Wednesday after losses of more than 4% on Tuesday driven by worries of a slowdown in demand from China, given Beijing stopped short of launching more major stimulus. In Asia, New Zealand and India will each deliver interest rate decisions, while data set for release includes Taiwan inflation and machine tool orders in Japan. South Korea will join FTSE Russell’s benchmark bond index, capping months of official campaigning and a overhaul of financial market infrastructure. The index provider also added India to its gauge of emerging market debt, according to a statement on Tuesday.
Gains for US stocks placed benchmarks within a striking distance of their all-time highs as investors began to prepare for the next round of corporate earnings. The S&P 500 topped 5,750.
Honeywell International Inc. gained on plans to spin off its advanced materials division. Roblox Corp. dropped as Hindenburg Research said it’s betting against the gaming platform.
Guessing Game
Mohamed El-Erian said the guessing game that’s taking place over the Fed’s path for monetary policy is creating market volatility.
“Markets are all over the place. In the last 15 days the probability of a 50 basis point cut in November has gone from over 60% to zero. November is next month,” El-Erian, the president of Queens’ College, Cambridge, told Bloomberg Television on Tuesday.
“That is how much uncertainty there has been in this market. These are massive moves based on data points,” he added.
Billionaire investor Ray Dalio said he doesn’t anticipate the Fed making “significant cuts in rates,” and that bonds are a risky investment given recent fluctuations in Treasury markets.
“Treasury bonds have not been a great investment,” the Bridgewater Associates founder said Tuesday at the Greenwich Economic Forum. “We have an interest rate risk in that bond market.”
Yields have risen after a healthy decline and for now, this indicates the bond market is pricing in fewer rate cuts and not more, according to Michael Landsberg at Landsberg Bennett Private Wealth Management.
“Yields will likely stay range bound and even if they rise from here, they have plenty of upside room before rising yields start to negatively affect stock prices,” he said.
