Asian stocks edge lower after mixed Fed signals

Synopsis

Asian stocks declined following a tech-driven dip in the S&P 500, compounded by cautious signals from Federal Reserve officials regarding interest-rate cuts. Jerome Powell highlighted persistent risks in both the labor market and inflation, maintaining flexibility amid pressure for aggressive easing. Oil prices rose due to concerns over Russian supply disruptions.

Asian stocks retreated after a drop in big tech halted the S&P 500’s three-day rally, while mixed signals from Federal Reserve policymakers clouded the path for interest-rate cuts.

The MSCI Asia Pacific Index fell 0.2% at the open with declines in Japan, which returned after a holiday, Australia and South Korea. Equity-index futures pointed to a flat start for Hong Kong, where markets are due to open even as the financial hub braces for Typhoon Ragasa.

Treasuries held their gains as Fed Chair Jerome Powell warned that risks persisted in both the labor market and inflation. He also reiterated that policymakers face a difficult path as they weigh further easing.

“Powell doesn’t want to antagonize the White House but he’s not rolling over either,” said David Russell at TradeStation. “He’s keeping his options open in case price pressures increase. Powell’s not trying to sound hawkish, but he’s trying to dodge some of the forceful demand for aggressive cuts.”

Fed officials lowered their benchmark interest rate by a quarter percentage point last week and penciled in two more reductions this year following months of intense pressure from the White House to slash borrowing costs.

While most shares in the S&P 500 rose on Tuesday, the index slipped. A gauge of tech megacaps lost 1.6%. In late hours, Micron Technology Inc. gave an upbeat forecast.

Oil extended gains early Wednesday on mounting risks to Russian supply, including strikes by Ukraine on energy infrastructure and heightened tensions with NATO. An index of US-listed Chinese companies fell 2.2% on Tuesday, its biggest loss in almost a month.

In the US, some policymakers are becoming more concerned about growing risks to the labor market, while others remain primarily worried about the possibility that above-target inflation could be pushed higher by tariffs and other policies.

Fed Governor Michelle Bowman said officials need to act decisively to bring down rates as the labor market weakens. Fed Bank of Atlanta President Raphael Bostic said he sees more inflation coming, echoing remarks from his Chicago counterpart Austan Goolsbee.

“While some hawkish Fed officials put a lot of weight on market developments and see this as a reason to be wary about cutting rates any further in the near term, this is not the way Powell and the core group think,” said Krishna Guha at Evercore.

Prospects of further rate cuts, surprisingly strong profit growth and enthusiasm for Big Tech companies that are capitalizing on artificial intelligence have all kept equities near their all-time highs.

The record-setting advance has pushed the S&P 500 nearly 3% above the average year-end forecast among those tracked by Bloomberg, which currently stands at 6,486. Only in 2024 and 1999 have the analyst calls lagged the market’s actual return so much around this time of the year.

“The bull market in equities is ‘alive and kicking’,” said Craig Johnson at Piper Sandler. “While we maintain our bullish outlook over the intermediate- to longer-term, we also recognize that the SPX has advanced for nearly five straight months without a material pullback.”

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