Asian shares were mostly higher on Tuesday, as investors anticipated market-moving events including a U.S.-China summit and data releases from the U.S., Japan, and China.
Market Performances
Japan’s benchmark Nikkei 225 gained 0.7%, while Australia’s S&P/ASX 200 advanced 0.9% and South Korea’s Kospi added 1.3%. Hong Kong’s Hang Seng dropped 0.1%, and the Shanghai Composite edged slightly higher.
Investor Sentiment
“Asian stocks gained ground as investors awaited U.S. inflation figures, hoping to confirm that interest rates have peaked. Meanwhile, positive geopolitical sentiments filled the backdrop as investors looked forward to anticipated talks between the U.S. and China,” said Stephen Innes, managing partner at SPI Asset Management.
Upcoming Economic Releases
China is scheduled to release monthly economic indicators on Wednesday, and Japan will announce its latest growth numbers.
U.S.-China Summit
On Wednesday, Chinese leader Xi Jinping is set to meet with President Joe Biden on the sidelines of a Pacific Rim summit in California. This will mark the first face-to-face encounter in a year between the leaders of the world’s two biggest economies.
Wall Street Performance
On Monday, Wall Street closed with mixed results. The S&P 500 slipped 0.1% to 4,411.55. The Dow Jones Industrial Average gained 0.2% to 34,337.87, while the Nasdaq composite fell 0.2% to 13,767.74.
Earnings Season
The profit reporting season for the summer is winding down, with most companies exceeding analysts’ expectations.
Later this week, Target, TJX, and Walmart will report their results, generating interest in upcoming trends rather than focusing solely on summer performance.
Economic Outlook
Despite the Federal Reserve’s recent interest rate hikes, the economy has remained strong. However, concerns persist about its ability to sustain its strength as the full effects of rate hikes permeate the system.
Inflation Report Signals Hope for Rate Cuts
The latest inflation report on Tuesday is eagerly awaited, as it is expected to show a continued cooling of inflation rates. This is crucial in convincing the Federal Reserve that further rate hikes are unnecessary. The hope is that this will accelerate the timeline for potential cuts to interest rates.
Expected Consumer Price Increase
Economists anticipate that the report will reveal a 3.3% increase in consumer prices in October compared to the previous year. This is a decrease from September’s inflation rate of 3.7%.
Powell’s Stance on Rates
Federal Reserve Chair Jerome Powell has recently suggested that the recent uptick in longer-term Treasury yields could serve as a potential substitute for additional rate hikes. However, Powell reiterated that the Fed remains ready to raise rates again if necessary.
Impact on Investment and Technology Stocks
High rates and yields have a significant impact on various investments, especially technology and high-growth companies. Consequently, certain Big Tech stocks, such as Apple and Microsoft, experienced slight declines, contributing to the dip in the S&P 500.
Moody’s Warning on U.S. Government Debt Rating
Moody’s, the credit-rating agency, issued a statement late Friday indicating a potential downgrade of the top-tier “AAA” rating for U.S. government debt. The rising interest rates and political divisions in Congress have contributed to this concern, especially with an impending deadline that could result in a government shutdown.
Deficit Worries and Treasury Yields
General concerns surrounding large deficits and the lack of bipartisan cooperation have also led to an increase in Treasury yields. This situation adds further pressure on the economy.
Crude Oil Prices and Currency Trading
Benchmark U.S. crude oil prices exhibited a slight increase in electronic trading on the New York Mercantile Exchange. Additionally, the U.S. dollar remained stable against the Japanese yen in currency trading.
