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

(Bloomberg) — China-related shares were primed for gains Wednesday ahead of key economic data, while US equities touched a fresh peak as traders held to bets the Federal Reserve will cut rates this year.

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Futures contracts for China and Hong Kong benchmarks climbed after mainland stocks and a gauge of US-listed Chinese shares rose on Tuesday. The S&P 500 gained for a sixth consecutive session, its longest winning streak since January, while the Nasdaq 100 also set a fresh record. Japanese and Australian equity contracts point to declines early Wednesday.

Shorter-term Treasuries outperformed on bets they would more likely benefit from policy easing. Fed chief Jerome 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.

“The rhetoric today 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, and many questions weren’t about the economy, but instead about Basel endgame.”

In Asia, traders’ focus on Wednesday will turn to the release of consumer and producer prices for China. The Reserve Bank of New Zealand is expected to hold interest rates in its latest decision today.

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.

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 rangebound, while the yen weakened slightly against the greenback. An index of emerging markets currencies was little changed Tuesday.

Treasury Secretary Janet Yellen said the labor 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.

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.

In commodities, West Texas Intermediate crude edged higher early Wednesday while gold was little changed.

Key events this week: