Asian stocks in tight range as rate cut bets pared

Synopsis

Asian equities showed mixed performance as US stocks and bonds declined, driven by reduced expectations for imminent Federal Reserve rate cuts. Attention is now focused on Jerome Powell's upcoming speech at the Jackson Hole symposium, with markets anticipating potential signals on future policy shifts. Meanwhile, the Justice Department is considering investigating Fed Governor Lisa Cook.

Asian equities traded within a narrow range after US stocks and bonds fell as traders pared back wagers on imminent Federal Reserve interest-rate cuts.

Shares in Japan and Australia declined while South Korea advanced. Contracts for the Nasdaq 100 declined 0.1% after a report said Nvidia Corp. instructed component suppliers to stop production related to the H20 AI chip. Treasuries were little changed after falling across the curve in the US session, sending yields higher. The yen steadied after Japan’s July core inflation came in at 3.1%, against an estimate for 3%.

The S&P 500 dropped 0.4% and the Nasdaq 100 fell 0.5% Thursday, deepening a slump that began last week. Most big techs slid and Walmart Inc. sank 4.5% on a profit miss.

Stronger US economic data and a more hawkish tone from Fed officials have led money markets to price a 70% chance of a September rate cut, down from 90% a week ago. Attention now turns to the central bank’s annual Jackson Hole symposium, where Chair Jerome Powell is scheduled to speak Friday at 10 a.m. New York time.

Fed Bank of Cleveland chief Beth Hammack said she wouldn’t support easing if officials had to decide tomorrow. Other Fed officials speaking Wednesday and Thursday struck a similarly hawkish tone as Cleveland’s Hammack.

Atlanta Fed President Raphael Bostic said he still sees just one rate cut this year as appropriate. Jeffrey Schmid, president of the Kansas City Fed, said inflation risk still outweighs risks to the labor market.

Fed Chicago President Austan Goolsbee said while some recent inflation readings have come in better than expected, he hopes one “dangerous” data point is just a blip.

While data showed an increase in jobless claims — adding to signs of a slowing labor market — the solid factory purchasing managers index made traders trim their bets on rate cuts. A gauge of manufacturing grew at the fastest pace since 2022.

“The Fed is being put in a tough spot, with pressures to cut interest rates as inflation rises and the labor market decelerates — with both of those metrics moving in the opposite direction from the Fed’s dual mandate,” said Bret Kenwell, US investment analyst at eToro.

The Fed chair’s annual speech in Jackson Hole can be an opportunity to flag policy shifts. Trouble is, the key economic indicators aren’t all pointing that way. With more economic numbers due before then, the Fed chief may prefer to keep his messaging carefully hedged.

Markets also need to consider the increasing likelihood that global growth will exceed expectations, bringing with it inflationary pressures that restrict central banks’ ability to cut rates.

“Key to the Jackson Hole symposium will be whether Fed Chair Powell updates his monetary policy reaction function,” said Calvin Tse at BNP Paribas. “In our base case, Powell sticks to his reaction function laid out in July. We think this would surprise markets hawkishly.”

Meantime, the Justice Department signaled possible plans to investigate Fed Governor Lisa Cook, with a top official encouraging Powell to remove her from the board. President Donald Trump’s housing-finance chief, Bill Pulte, has called for a probe over mortgage agreements she allegedly made in 2021.

Oil steadied Friday after two days of gains. A Trump administration trade official said he expected additional tariffs on India as a result of the country’s Russian crude purchases.

...moreless

...moreless