Stocks, Bonds Fall as Traders Trim Rate Cut Bets: Markets Wrap
Asian equities were primed to open little changed after stocks and bonds fell on Wall Street as traders trimmed bets on imminent Federal Reserve rate cuts.
Equity index futures for Japan and Australia were steady while those for Chinese benchmarks edged slightly higher. An index of US-listed Chinese companies rose for a second day Thursday as US benchmarks fell.
The dropped 0.4% and the fell 0.5% Thursday, deepening a slump that began last week. Most big techs slid and sank 4.5% on a profit miss. Treasuries fell across the curve during the US session, sending yields higher, which supported the dollar.
The action reflected signs of strength from the US economy that weighed on expectations for rate cuts as central bankers and economists from around the world gathered for the Fed’s economic symposium in Jackson Hole, Wyoming. Fed Chair Jerome Powell is due to speak Friday at 10 a.m. New York time.
A gauge of manufacturing grew at the since 2022. Fed Bank of Cleveland chief Beth Hammack said she wouldn’t support easing if officials had to decide tomorrow.
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. Money markets saw a roughly 70% chance of a reduction in September. A week ago the odds were above 90%.
“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.
Oil advanced Thursday after a Trump administration trade official said he expected on India as a result of the country’s Russian crude purchases.
Meantime, the Justice Department signaled 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.
Jackson Hole
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.
“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.”
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.
In both messaging and execution, the Fed will need to tread carefully, according to Jim Baird at Plante Moran Financial Advisors.
“Cut too early or too aggressively, and the Fed risks pushing inflation expectations even higher,” he added. “Move too slowly, and the potential for labor conditions to further deteriorate and the economy to stall increases.”
Some of the main moves in markets:
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Commodities
This story was produced with the assistance of Bloomberg Automation.
