MSCI’s gauge for Asian equities was little changed on Wednesday following a more than 2% rise in the previous session, when US President Donald Trump announced a ceasefire between the Middle East rivals. US equity futures were flat after the S&P 500 climbed 1.1% and the Nasdaq 100 rose 1.5% on Tuesday, notching its first record since February.
Treasury yields and a gauge of the dollar steadied. The benchmark 10-year yield shed five basis points in the previous session as Fed Chair Jerome Powell said “many paths are possible” for monetary policy. Traders continued to keep a very close eye on Middle East as the situation surrounding the nascent peace deal remains precarious. Iran and Israel appeared to honor the agreement after Trump lashed out at both side for early breaches.
“Markets are finally breathing again,” said Haris Khurshid, chief investment officer at Karobaar Capital. “The easing in Middle East tensions, paired with Powell striking a more flexible tone, is giving equities room to run and volatility a much-needed pause.”
Powell’s remarks before the House Financial Services Committee came on the heels of the Fed’s decision last week to stay on hold. While the Fed chair largely maintained his call for patience as the economy absorbs the impact of trade tariffs, he said that lower inflation and weaker labor hiring could lead to an earlier rate cut. Money markets fully priced in two Fed cuts by the end of 2025, with a first move in September far more likely than next month — though bets on a July reduction edged up from last week.
“If it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates, sooner rather than later,” Powell told lawmakers in response to a question about the possibility of a July move. “But I wouldn’t want to point to a particular meeting. I don’t think we need to be in any rush because the economy is still strong.”To Andrew Brenner at NatAlliance Securities, Powell was unable to “convince markets of hawkishness.”“The markets are telling Powell that he will be lowering rates much more quickly than he portrayed today,” Brenner noted. “We just don’t know about July. We would need a weak payroll report.”
Fed Bank of Minneapolis President Neel Kashkari said officials need more clarity on how tariffs will impact prices even as recent inflation data has been “quite positive.” His New York counterpart John Williams said it’s “entirely appropriate” to hold rates to analyze impacts of policy changes. Fed Governor Michael Barr said he anticipates tariffs will drive up inflation and expressed support for a wait-and-see approach on rates.
Fed Bank of Cleveland chief Beth Hammack said policymakers may hold borrowing costs steady for some time. Meantime, Boston Fed President Susan M. Collins said the modestly restrictive stance is necessary.
Trump on Tuesday surprised both oil traders and officials in his own government by appearing to undermine years of US sanctions on Iran, giving its biggest customer China the green light to carry on buying the Islamic Republic’s oil as he seeks to bolster the ceasefire with Israel.
In Asia, Australia reports inflation later Wednesday, while the Bank of Thailand is expected to keep its policy rate steady. South Korea’s bid for a developed-market status hit a setback after MSCI Inc. kept the country in the emerging-market category following a review.
