Asian Traders Cautious as US Data Clouds Fed Path: Markets Wrap

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(Bloomberg) — Asian stocks may struggle for direction on Wednesday after Wall Street erased gains, as weakening US services data raised concerns about the Federal Reserve’s policy path. 

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Equity-index futures for Japan and Hong Kong pointed to losses at the opening of trading, while those for Australia indicated a small gain. Chinese markets will be in focus after President Donald Trump said he was “getting very close to a deal” with Beijing. Oil held steady, following a further drop Tuesday amid reports that Russia is mulling an aerial truce with Ukraine.

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The S&P 500 was on the brink of all-time highs on Tuesday, before losing steam. In late hours, Advanced Micro Devices Inc. gave a stronger-than-expected sales forecast, but warned that its access to the crucial China market remains uncertain. Super Micro Computer Inc. tumbled after its results missed expectations. 

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Markets have faced conflicting signals in recent weeks, caught between slowing global demand and hopes for policy easing in the US. The pullback in stocks highlights investor anxiety over the Fed’s next move, with economic data complicating the central bank’s balancing act between controlling inflation and sustaining growth.

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“We expect further choppy trading to persist in the later stages of summer, especially as the path of interest-rate policy remains unknown and highly sensitive to incoming economic data,” said Chris Senyek at Wolfe Research.

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Trump also suggested he would impose increased tariffs on additional countries buying energy from Russia — including China — after saying earlier Tuesday that he would raise levies on Indian exports within 24 hours.

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Meanwhile, Swiss President Karin Keller-Sutter arrived in Washington to make a last-minute bid for a deal to lower the 39% tariff imposed last week. The trip is to “facilitate meetings with the US authorities at short notice and hold talks,” the government said in a statement. 

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Weak Service Data

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The US services sector stagnated as firms — faced with tepid demand and rising costs — reduced headcount. Data out last week showed weaker-than-expected jobs data while inflation-adjusted consumer spending barely rose.

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“Traders are continuing to speculate on the time of the Fed’s next rate cuts with sticky inflation signs weighed against weakening economic indicators,” said Fawad Razaqzada at City Index and Forex.com.

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He also noted the S&P 500 outlook could start to deteriorate in the near-term amid warnings over sky-high valuations against a backdrop of weakening economy.

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A soft $58 billion sale of three-year notes kicked off a trio of US auctions this week. The yield on 10-year Treasuries edged higher to 4.21%, while those on two-year notes rose five basis points to 3.72%.