Asia Stocks Set to Open Lower in Wake of US Losses: Markets Wrap

2023-06-21 06:19

Asian equity markets were poised to open lower Wednesday following declines in the US, with investors growing cautious

Asia Stocks Set to Open Lower in Wake of US Losses: Markets Wrap

Asian equity markets were poised to open lower Wednesday following declines in the US, with investors growing cautious ahead of the Federal Reserve chief’s congressional testimony. The dollar rose with Treasuries in a sign of demand for havens.

Futures declined for benchmarks in Japan, Hong Kong and Australia. The S&P 500 notched its first back-to-back losses in nearly four weeks Tuesday as trading resumed after a long holiday weekend. US-listed Chinese stocks suffered their biggest decline in three months.

In extended US trading, economic bellwether FedEx Corp. tumbled after its 2024 outlook fell short of analyst consensus estimates on weakened demand.

Treasuries rose following gains in Europe, with gilt yields leading the drop ahead of inflation data Wednesday. The dollar advanced against all of its Group-of-10 counterparts except the yen.

Investors caught between fear of missing out and concerns markets have run too far, too fast are contending with overblown valuations and hawkish signals from the Fed. Bullish positioning in US equity futures grew last week, taking it to the most extended levels for the S&P 500 and Nasdaq 100 in data going back to 2010, according to Citigroup strategists.

Fed Chair Jerome Powell is scheduled to give his semi-annual report to Congress on Wednesday, with Bloomberg Intelligence expecting a hawkish tone. While the policymakers kept interest rates unchanged at their meeting last week, they forecast rates may reach 5.6% in 2023, implying around two additional quarter-point rate hikes or one half-point increase. That contrasts with market pricing slightly more 20 basis points of hikes in the remainder of the year.

Data Tuesday showed US housing starts unexpectedly surged in May by the most since 2016 and applications to build increased, suggesting home construction is on track to help fuel economic growth.

“Our skepticism around the sustainability of the rally in US market-cap weighted indexes stems primarily from continued investor belief that the Fed is bluffing on holding rates higher for longer,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a note. “If a favorable soft landing does materialize, the Fed will have no incentive to cut rates, especially if labor markets are still relatively resilient.”

The Nasdaq Golden Dragon China Index fell almost 5% on Tuesday, following a two-day 3.7% drop in the Hang Seng Tech index after the State Council failed to issue specific support measures and banks offered modest rate cuts. Elsewhere, oil retreated, with global benchmark Brent settling below $76 a barrel, amid broader risk-off sentiment.

Key events this week:

Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
Chicago Fed President Austan Goolsbee speaks, Wednesday
Eurozone consumer confidence, Thursday
Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
Fed’s Powell delivers testimony before the Senate Banking Committee, Thursday
Cleveland Fed’s Loretta Mester speaks Thursday
Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
Japan CPI, Friday
US S&P Global Manufacturing PMI, Friday
St. Louis Fed President James Bullard speaks, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 8:03 a.m. Tokyo time. The S&P 500 fell 0.5%
Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.1%
Nikkei 225 futures fell 0.7%
Australia’s S&P/ASX 200 Index futures fell 0.4%
Hang Seng Index futures fell 1.2%

Currencies