Stocks struggle before Powell; dollar edges higher: Markets wrap

European and US equity futures fluctuated in narrow ranges while China led Asian stocks lower in cautious trading before the Federal Reserve chief’s congressional testimony.

Treasury yields and the dollar made small gains. The pound spiked higher on UK inflation data before trading little changed.

Hong Kong’s Hang Seng Index dropped about 2% as it headed for a third-straight day of losses before a holiday on Thursday in the city and on the mainland. The yuan weakened past the closely watched 7.2-per-dollar level for the first time since November.

Investors remain disappointed with Beijing’s failure to issue new and specific economic support measures. The view was also reflected in US-listed Chinese stocks, which earlier suffered their biggest decline in three months.

The moves in Asian markets followed the S&P 500 notching its first back-to-back losses in nearly four weeks Tuesday as trading resumed after a long holiday weekend. Economic bellwether FedEx Corp. added to the downbeat news flow, tumbling in extended US trading after its outlook fell short of analyst consensus estimates on weakened demand.

Investors in US stocks are caught between fear of missing out and concerns markets have run too far, too fast as they contend with overblown valuations and hawkish signals from the Fed.

“We’ve seen really a spectacular rally in equities and I think people are nervous,” Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex, said on Bloomberg Television. “Fixed income short signals are so strong. That suggests there’s still room for rate hikes.”

Goldman Sachs Group Inc. strategists including Cormac Conners and David J Kostin said funds should consider hedging their S&P 500 exposure. Crowded bullish positioning, a narrow rally, high valuations, pricing for growth that has run past estimates and attractive alternatives to equities all add to the risks, they wrote in a June 20 note. Goldman’s base case is for the S&P 500 to climb to 4,700 in 12 months but the investment bank also sees a drop to 3,400 as possible if a recession becomes more likely.

Meanwhile, bond yields fell in Asia, following the lead from US Treasuries on Tuesday. The yield on the 10-year Australian security dropped about five basis points while its Japanese equivalent fell by one basis point. Treasury yields rose fractionally on Wednesday.

A gauge of dollar strength edged up after the greenback advanced against all of its Group-of-10 counterparts Tuesday except the yen. The Japanese currency weakened on Wednesday.

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, their forecasts imply around two additional quarter-point rate hikes or one half-point increase.

“He will come on and try to remain hawkish,” Mahjabeen Zaman, head of FX research at ANZ Bank in Sydney, said on Bloomberg Television. She expects one more rate hike from the Fed while noting the risk of more increases. Looking longer term, Zaman sees downward pressure on the dollar after the Fed reaches its rates peak and for currencies more broadly to take their cues from growth differentials.

Elsewhere in markets, oil rose as traders weighed China’s outlook and prepared for commentary from Powell. Gold fell slightly after dropping 0.7% on Tuesday.

Bitcoin rose as much as 3% to a six-week high on crypto initiatives involving major players from the traditional financial sector.

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 fell 0.1% as of 7:09 a.m. London time. The S&P 500 fell 0.5%
• Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 0.1%
• Japan’s Topix rose 0.5%
• Australia’s S&P/ASX 200 fell 0.4%
• Hong Kong’s Hang Seng fell 2%
• The Shanghai Composite fell 0.8%
• Euro Stoxx 50 futures were unchanged

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.0908
• The Japanese yen fell 0.3% to 141.91 per dollar
• The offshore yuan fell 0.2% to 7.2001 per dollar
• The Australian dollar fell 0.1% to $0.6776
• The British pound was little changed at $1.2764

Cryptocurrencies

• Bitcoin rose 2.7% to $28,932
• Ether rose 1.9% to $1,819.39

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.75%
• Japan’s 10-year yield declined 1.5 basis points to 0.370%
• Australia’s 10-year yield declined five basis points to 3.98%

Commodities

• West Texas Intermediate crude rose 0.2% to $71.36 a barrel
• Spot gold fell 0.2% to $1 931.64 an ounce

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