China stocks eye gains; S&P 500 steady on Powell: Markets wrap

The S&P 500 advanced for a sixth consecutive session, its longest winning streak since January, as traders held to bets the will cut rates this year. The also set a fresh record.

Fed chief was careful not to offer a timeline for rate cuts in comments to lawmakers on Tuesday. However, he emphasized mounting signs of a cooling job market after government data showed a third straight month of rising unemployment. Australian bonds fell in early trading, echoing moves in long-dated Treasuries. Shorter-term Treasuries outperformed Tuesday on bets they would more likely benefit from policy easing.

The rhetoric “continued to move toward preparing the market for a cut in rates later this year,” said Michael Feroli at JPMorgan Chase & Co. “Powell largely stuck to the script when it came to the economy.”

In Asia, Japan’s largest banks called on the Bank of Japan to make deep cuts to its monthly bond purchases during hearings of market participants at the central bank, according to people who attended.

Elsewhere, the Reserve Bank of New Zealand is expected to hold interest rates in its decision today. Traders will also be watching for the release of consumer and producer prices for China. Bond traders are getting ready for China to start pushing back on record-low yields, with the central bank now armed with “hundreds of billions” of yuan of securities at its disposal to sell.

Investors will also keep a keen eye on China Vanke Co. after the homebuilder warned that losses grew substantially in the second quarter.

Bloomberg

In his comments, Powell said regulators are close to agreeing to change their plan to force big banks to hold significantly more capital - a major win for Wall Street lenders. The overhaul is tied to Basel III, an international accord that followed the 2008 financial crisis and is intended to prevent bank failures and another crunch.

Treasuries pared losses after a solid $58 billion sale of three-year notes, though a rout in European bonds kept a lid on the market. Swap traders continued to project two rate cuts in 2024.

Currencies held to muted moves. A gauge of dollar strength was rangebound, while the yen was flat after weakening against the greenback Tuesday. An index of emerging markets currencies was little changed Tuesday.

Treasury Secretary Janet Yellen said the labor market is no longer driving inflation in the US economy to the extent it was earlier in the pandemic recovery, echoing earlier comments by Powell.

Tech Rally
Wall Street has tilted toward the tech sector to a historic degree, raising the stakes should the artificial intelligence-fueled rally falter. Valuations are stretched, while earnings growth is poised to slow from here.

That adds to uncertainty for investors betting that Big Tech’s rally will continue, according to Lisa Shalett at Morgan Stanley’s wealth management unit, who warns of “stretched momentum, weak breadth and complacency” in the market.

The rally in artificial-intelligence stocks may show little sign of flagging, but a historical review suggests it’s time to take profit in the biggest names, according to strategists at Citigroup Inc. led by Drew Pettit. Sentiment toward AI-exposed equities is the strongest since 2019 and free cash flow at the bulk of those firms is forecast to outstrip analyst expectations, they said.