Asian stocks were mixed in light “Golden Week” trading on Tuesday with markets in China, Japan and some other countries closed for the holidays.
Investors are watching to see what the US Federal Reserve does as it steps up its efforts to curb inflation. The central bank is expected to raise short-term interest rates to double the usual amount when it releases its latest statement on Wednesday. It has already raised its key overnight rate once, for the first time since 2018, and Wall Street expects several big hikes in the coming months.
It will make borrowing more expensive – for a car, a house, a credit card purchase and could weaken the economy. It would also attract investment from equities to other assets as their returns rise. Ultra-low interest rates helped push stocks to all-time highs during the pandemic and now that process is being reversed.
Central banks in many other countries are also raising rates in an attempt to rein in rising prices.
The Reserve Bank of Australia was expected to decide on a rate hike later on Tuesday. New Zealand has started raising rates, as have some other central banks in the region, with the exception of Japan and China, where economic recovery has been slowed by efforts to tame recent coronavirus outbreaks. .
“For the upcoming session, traders will be working on positioning ahead of the FOMC (Fed) and watching the RBA meeting, where much firmer than expected . . . Australian Consumer Price Index data has perhaps tipped the scales towards a rate hike,” Anderson Alves of ActivTrades said in a commentary.
Australia’s S&P/ASX 200 was virtually unchanged at 7,348.40.
Hong Kong’s Hang Seng rose 0.1% to 21,114.25 and South Korea’s Kospi rose 0.2% to 2,693.38.
On Monday, a late afternoon reversal led by tech stocks left major indexes slightly higher on Wall Street, avoiding more losses after a brutal April when a tech selloff dragged major benchmarks down.
The S&P 500 rose 0.6% to 4,155.38, while the Dow Jones Industrial Average gained 0.3% to 33,061.50. The Nasdaq climbed 1.6% to 12,536.02.
Smaller company stocks also reversed course after spending much of the day in the red. The Russell 2000 Index rose 1% to 1,882.91.
Bond prices fell, pushing yields higher. The 10-year Treasury yield was 2.98% after hitting 3.00% on Monday. It had not exceeded 3% since December 3, 2018, according to Tradeweb.
The uneven start to May follows an 8.8% slippage for the benchmark S&P 500 in April, led by Big Tech companies, which have started to look overvalued, especially with interest rates expected to sharply increase.
Just over half of S&P 500 stocks closed higher, with the technology and communications sectors driving much of the advance. Chipmaker Nvidia and Facebook parent company Meta Platforms each rose 5.3%.
The broader market often panders to the direction of technology stocks. Many companies in the sector have expensive stock values and therefore have more strength to push the major indexes up or down.
Still, it’s unusual for tech stocks to rally at the same time bond yields rise. Indeed, higher yields make bonds increasingly attractive assets relative to riskier and more expensive stocks, especially those in technology and other growth-oriented companies.
US crude oil prices rose. EU energy ministers meet in Brussels to discuss Russian supply problems and sanctions. Russia’s invasion of Ukraine caused already high oil and natural gas prices to spike.
Benchmark U.S. crude oil fell 21 cents to $104.96 a barrel in electronic trading on the New York Mercantile Exchange. It gained 48 cents to $105.17 a barrel on Monday.
Brent crude fell 21 cents to $107.37 a barrel.
Concerns about rising inflation are weighing on the latest round of corporate earnings. This week will bring more, with Pfizer reporting results on Tuesday, CVS Health on Wednesday and Kellogg on Thursday.
In currency trading, the dollar was at 130.00 Japanese yen, down from 130.15 yen on Monday. The euro fell from $1.0505 to $1.0516.
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