Stocks, futures up as post-Powell slide subsides

An Asian stock gauge rose yesterday as investor sentiment stabilised following a rout sparked by the Federal Reserve’s signal of a sustained period of restrictive monetary policy to quell inflation.

The regional index added 0,5 percent as a climb in Japan helped to counter a retreat in Chinese tech shares. US and European futures were in the green, signaling a break in the equity slump that began Friday when Chair Jerome Powell stressed the Fed is willing to let the economy suffer to cool price pressures.

Treasury yields dipped and the dollar was steady. Oil remained in sight of the highest level since late July on potential Libyan production outages. Gold inched lower while Bitcoin made modest gains.

In China, the central bank set a stronger-than-expected yuan fixing for a fifth day, a sign it doesn’t want an excessively weak currency. The move highlights how greenback strength is a challenge for Asia as the region’s currencies slip.

There’s “more pain ahead” for the yuan and a fall to 7 per US dollar looks likely, Divya Devesh, a foreign exchange strategist at Standard Chartered, said on Bloomberg Television.

Powell’s push back against market hopes for a pivot to interest-rate cuts next year is the latest setback in a challenging year for investors. The Fed this week is also set to step up the unwinding of its near-$9 trillion balance sheet. Other risks range from China’s economic slowdown to Europe’s energy crisis as Russia continues its war in Ukraine and chokes gas supplies.

“The markets are spooked because they are afraid that the Fed could create a hard landing — that they’ll raise rates into a recession and that will be really painful for the economy and for corporate profits,” Terri Spath, chief investment officer at Zuma Wealth, said on Bloomberg Television

Minneapolis Fed President Neel Kashkari said sharp stock-market losses show investors have got the message that the US central bank is determined to contain inflation. “People now understand the seriousness of our commitment to getting inflation back down to 2 percent,” he said.

In Europe, natural gas and power prices plunged after Germany said its stores of the fossil fuel are filling up faster than planned. But Germany remains vulnerable in the winter if Russia halts gas flows. The European Union is preparing to step into its energy market to damp soaring power costs.—Bloomberg