Stocks, Bonds Fall as Traders Rethink Fed Velocity: Markets Wrap

(Bloomberg) — Japanese equities showed signs of resilience as other Asian markets opened lower, as investors prepare for comments from Jerome Powell later Friday.

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Equities in Australia and South Korea fell alongside Hong Kong share futures, echoing Thursday’s selloff in US stocks where both the S&P 500 and tech-heavy Nasdaq 100 indexes retreated.

The yen was stronger early Friday as Japanese inflation data exceeded forecasts. Consumer prices in July rose 2.8% from a year earlier, the same as the prior month and higher than the 2.7% expected by economists.

Investors are bracing for potential surprises as Governor Kazuo Ueda speaks to Japanese lawmakers on Friday after hawkish rhetoric helped trigger a massive selloff in global stock markets earlier this month.

The 10-year Treasury yield was steady in Asian trading after rising five basis points Thursday, when the policy-sensitive two-year yield climbed seven basis points, largely reversing the move from the prior session. An index of dollar strength was little changed after a Thursday advance. Australian and New Zealand bond yields climbed early Friday.

“We are now once again not debating if they will cut, but by how much they will cut and how many times they will cut before year end,” said Kenny Polcari at SlateStone Wealth. “The US economy is not circling the drain – so there is no need to suggest that it is.”

Investors waded through a raft of remarks from US policymakers, with Fed Bank of Kansas City President Jeffrey Schmid saying he wants to see more data before supporting cuts. His Boston counterpart Susan Collins said “a gradual, methodical pace” is likely to be appropriate. Her comments were echoed by Philadelphia Fed President Patrick Harker in a CNBC interview.

“The script is clear — the Fed is going to ease in September, but no one is portraying a desire to ease 50 basis points at this time,” said Andrew Brenner at NatAlliance Securities.

On the economic front, the latest figures were more of a “mixed bag.” Jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing amid elevated rates. US manufacturing activity shrank at the fastest pace this year. And existing-home sales increased for the first time in five months.

Declines in US stocks on Thursday included a 3.7% drop for Nvidia Corp. leading losses in big tech. Intel Corp. tumbled 6.1%, while banks climbed and energy shares joined oil higher. Peloton Interactive Inc. surged 35% after the fitness company reported earnings that beat estimates.

In commodities, West Texas Intermediate was flat after a 1.5% Thursday gain and gold advanced after a decline on Thursday.

Key events this week:

BOJ’s Kazuo Ueda to attend special session at Japan’s parliament to discuss July hike, Friday
US new home sales, Friday
Jerome Powell speaks in Jackson Hole, Friday

Some of the main moves in markets:

Stocks