Asian stocks mixed, bonds climb ahead of Powell speech

Synopsis

Asian equities are poised for a mixed open as Wall Street favored bonds ahead of the Federal Reserve's Jackson Hole gathering. Fed officials highlighted inflation risks, fueling debate within the central bank. Technology stocks declined, with the 'Magnificent Seven' experiencing their longest losing streak since April, raising concerns about a potential market correction.

Asian equities were primed for a muted open Thursday as whipsawing trade on Wall Street favored bonds over stocks ahead of a key gathering of Federal Reserve officials.

Equity-index futures for Japan were slightly lower while those for Chinese and Australian equity benchmarks inched higher. A gauge of US-listed Chinese shares climbed in New York on Wednesday, running against the grain of tech-led declines for US benchmarks. The S&P 500 fell 0.2% and the Nasdaq 100 dropped 0.6%. Treasuries climbed across the curve Wednesday, leaving the US 10-year yield two basis points lower.

The dollar ended Wednesday little changed and the yen was stable Thursday after strengthening against the greenback in the prior session. Oil climbed Wednesday as a report showed a drawdown in US reserves.

The advance in bonds was a sign traders were shrugging off inflation concerns identified in the latest Federal Reserve meeting minutes released Wednesday. Swaps showed traders continued to price in a high probability of lower US interest rates in September - a wager that faces a key test as central bankers gather in Jackson Hole, Wyoming, with investors awaiting remarks from Fed Chair Jerome Powell.

“The minutes are consistent with Powell’s hawkish comments last meeting,” said David Russell at TradeStation. “The bulls might get some cold water splashed in their faces at Jackson Hole.”

Most Federal Reserve officials highlighted inflation risks as outweighing concerns over the labor market at their meeting last month, as tariffs fueled a growing divide within the central bank’s rate-setting committee.

Officials acknowledged worries over higher inflation and weaker employment, but a majority of the 18 policymakers in attendance “judged the upside risk to inflation as the greater of these two risks,” according to the minutes of the Federal Open Market Committee’s July 29-30 meeting.

“The Fed will cut in September absent a re-tightening of the labor market combined with adverse inflation news,” Marco Casiraghi at Evercore said. He noted as a sign of stability, that the Fed minutes showed almost all participants believe the central bank “was well positioned to respond in a timely way to potential economic developments.”

In other Fed news, Governor Lisa Cook signaled her intention to remain at the central bank in defiance of calls for her resignation by President Donald Trump over allegations of mortgage fraud.

Meanwhile, technology stocks dropped with the Nasdaq 100 index declining for a second consecutive day Wednesday. A gauge of the so-called ‘Magnificent Seven’ large cap tech firms fell for a fourth consecutive day, the longest losing streak since mid April.

US stocks are “in the early days” of a bubble, although the critical point for a correction has yet to come, Oaktree Capital Management LP co-founder Howard Marks cautioned.

Declines for US megacaps dragged down the S&P 500 for a fourth straight session Wednesday, despite a bounce off session lows. While most major groups in the US equity benchmark finished higher, some strategists warned that the extra-heavy weighting of tech giants may turn the “rotation” out of the sector into a broader rout.

“Rotation can only take place if the tech stocks hold up,” said Matt Maley at Miller Tabak. “If they decline, the only rotation we’ll see will be into cash.”

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