July 26 (Reuters) – – A look at the day ahead in Asian
markets by Alden Bentley in New York.
U.S. stock markets tried to steady from their epic one-day
shakeout before giving it up late in the day, amid jitters about
AI earnings potential that deflated megacaps, and, thus, the
whole market on Wednesday.
The S&P 500 and Nasdaq rallied during the session, but
closed down 0.5% and 0.9% respectively. The Dow Jones
Industrial Average hung on to close 0.2% higher and small-cap
stocks also rose as investors sought out value away from the
megacaps.
Tesla was the only one of the so-called Magnificent
7 stocks to climb out of its hole, ending 1.7% higher after
losing more than 12% Wednesday. Alphabet, Apple
, Amazon, Meta and Microsoft
all fell, with earnings reports looming next week, as did AI
leader Nvidia, which reports later in August.
Some relief came from GDP data showing the U.S. economy grew
surprisingly fast in the second quarter, with less inflation,
giving the Fed scope to ease this year with little fear of
overheating.
Still, investors want to see what Friday’s June Personal
Consumption Expenditure Price Index shows as the Fed’s favorite
inflation reading, days before the Federal Open Market Committee
meeting next week. There seems little chance of a U.S. cut this
month, but markets are confident that a pivot away from
restrictive monetary policy will come in September.
The question: Is the selloff a bull market pullback or a
bearish turning point? Given the recent string of record highs,
indexes looked priced for perfection, which was not realized in
the results from Alphabet and Tesla that precipitated the
steepest percentage drop in the S&P 500 and Nasdaq since late
2022.
Uncertainty is a prominent theme ahead of the U.S. elections
after President Joe Biden scrubbed his campaign and handed the
baton to Vice President Kamala Harris, who has almost pulled
even in early polls with Republican Donald Trump.
Volatility has picked up across markets, according to the
CBOE Market Volatility Index, the bond market’s ICE BofA
Merrill Lynch MOVE Index and currency market’s
Deutschebank dollar currency vol index.
It doesn’t help that the Bank of Japan and the Fed hold
meetings almost simultaneously next week. China’s economy is
slowing faster than economists and Beijing anticipated, with
spillover into commodity markets and across Asia.
The Japanese yen rallied for a fourth straight session
against the dollar on Thursday, hitting a 2-1/2-month high, as
investors unwound their long-running bets against the currency
ahead of those meetings. Dollar/yen was at 153.845 in late
trade, just about flat.
Chinese stocks fell , iron ore and oil prices were shaky
after the country’s central bank sprang a surprise cut in
longer-term interest rates, only stoking further worries about
the world’s second-largest economy and Asian markets overall.
The Shanghai Composite index closed at the lowest
level since Feb. 19. MSCI’s broadest index of Asia-Pacific
shares outside Japan closed 1.00% lower, while
Japan’s Nikkei is coming off a 3.28% tumble.
“In China it’s not really a function of the cost of
capital, it’s a function of demand (for) capital which is
causing economic weakness over there, which is why you had a
really tepid response from Chinese equities,” said Jeff Schulze,
Head of economic and market strategy ClearBridge Investments.
Here are key developments that could provide more direction
to markets on Tuesday:
– Japan Tokyo CPI (July)
– Singapore Manufacturing output (June)
– U.S. Personal Consumption Expenditures Price Index (June)