Asian stocks fell on Wednesday as markets shrugged off a Wall Street rally and awaited Federal Reserve Chair Jerome Powell’s testimony in Congress.
Japan’s benchmark Nikkei 225 lost 0.4% to close at 26,149.55. Australia’s S&P/ASX 200 lost 0.2% to 6,508.50. South Korea’s Kospi fell 2.7% to 2,342.81. Hong Kong’s Hang Seng fell nearly 2.0% to 21,132.42, while the Shanghai Composite was down 1.1% to 3,269.63.
Stocks have slid for most of the past few weeks as investors adjust to higher interest rates, which the Federal Reserve and other central banks are increasingly spending to curb record-high inflation. Investors fear the Fed risks slowing economic growth too much and triggering a recession.
The overnight rally on Wall Street “will be taken with caution as elevated inflation and risks to growth remain,” said Mizuho Bank’s Venkateswaran Lavanya.
The Wall Street rally that ushered in the holiday-shortened week came as investors looked ahead to what Jerome Powell will tell Congress on Wednesday, the first of two days of testimony under the central bank’s semi-annual monetary policy report.
“Right now, the fundamental catalyst for a more sustained recovery seems fragile, with all eyes on Fed Chair Jerome Powell’s statement to further push expectations around the policy outlook and inflation,” said Yeap Jun Rong, market strategist at IG in Singapore, in a comment.
Concerns about inflation and interest rates were compounded by a surge in energy prices following Russia’s invasion of Ukraine. The price of US crude oil is up about 52% for the year. That has put more strain on the wallets of people at the pump and is slowing spending elsewhere.
Oil prices fell back on Wednesday, with benchmark U.S. crude falling $5.44 to $104.08 a barrel. Brent crude, the international standard, fell $5.21 to $109.44 a barrel.
The ongoing list of concerns has made for an extremely turbulent market. Daily fluctuations between gains and losses were common, and major indices sometimes alternated between strong gains and losses on an hourly basis.
US markets were closed on Monday for June 16 observation. Last week, the Fed raised its short-term interest rate by the highest since 1994, the central bank’s latest attempt to tame the worst inflation in 40 years.
The S&P 500 rose 2.4% to 3,764.79, recouping about 40% of last week’s losses. More than 85% of stocks in the benchmark index gained ground. The Dow Jones Industrial Average was up 2.1% to 30,530.25 and the Nasdaq was up 2.5% to 11,069.30.
Smaller company shares also rose. The Russell 2000 was up 1.8% to 1,694.03.
Technology stocks posted some of the strongest gains. Apple was up 3.3% and Microsoft was up 2.5%.
Retailers, healthcare companies and banks also made solid gains. Kellogg rose 2% after the maker of frosted flakes and rice krispies announced it would split into three companies. Spirit Airlines rose 7.9% after JetBlue sweetened its takeover bid for the low-cost airline.
Last week, the Fed raised its short-term interest rate by three times the usual amount. It’s also just begun to off its balance sheet some of the trillions of dollars in bonds it’s bought during the pandemic. This should push longer-term interest rates higher and is another way central banks are breaching previously under-market support to stimulate the economy.
The Fed’s moves come as some disheartening signals have emerged about the economy, including falling retail spending and gloomy consumer sentiment. The National Association of Realtors reported Tuesday that sales of previously occupied US homes have slowed for the fourth straight month. The housing market, a crucial part of the economy, is slowing as homebuyers face record prices and significantly higher home financing costs than a year ago after a rapid rise in mortgage rates.
The Fed could consider another such mega-hike at its next meeting in July, but Powell said hikes of three-quarters of a percentage point are not common.
In forex trading, the US dollar fell from 136.64 yen to 136.33 Japanese yen. The euro cost $1.0474 compared to $1.0537.