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Equity markets struggle as traders await Fed boss testimony

HONG KONG (AFP) – Markets mostly fell yesterday, following a downbeat lead from Wall Street as investors braced for Federal Reserve (Fed) boss Jerome Powell’s testimony to the United States (US) Congress.

The retreat extended a subdued start to the week, with investors unimpressed by China’s efforts to boost its economy, including a fresh interest rate cut that was smaller than expected.

All three major US indices as well as the top European markets closed in the red on Tuesday, and Asian investors picked up the baton in a similar mood.

Hong Kong sank around two per cent and has now given back all the gains made in last week’s rally, while Shanghai was more than one percent down.

There were also losses in Sydney, Wellington, Seoul, Manila and Bangkok, though Tokyo, Singapore, Taipei and Mumbai chalked up gains.

London sank as data showed United Kingdom inflation unchanged last month, confounding forecasts for a drop.

United States Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a meeting at the headquarters of the Federal Reserve in Washington, DC, United States. PHOTO: AFP

The figures come a day before the Bank of England is expected to hike interest rates again as it struggles in its battle against aggressive price rises.

Paris also dropped though Frankfurt edged higher.

All eyes are on Washington, where Fed Chair Powell will make a semiannual appearance beforeCongress. His comments will be closely scrutinised for clues about the direction of the Fed’s campaign to fight soaring inflation with interest rate hikes.

“He will come on and try to remain hawkish,” ANZ Bank’s Mahjabeen Zaman told Bloomberg Television, saying there was still a risk of further hikes.

The US central bank last week held rates steady after 10 straight increases, but signalled more hikes to bring prices under control.

The anxiety over Powell’s testimony built on top of disappointment on market floors this week with Beijing’s moves to try and revive the Chinese economy.

The People’s Bank of China reduced its benchmark five-year rate by 10 basis points on Tuesday, less than the 15 points expected, though it did meet forecasts for a 15-point reduction in the one-year rate.

Uncertainty over the Chinese economy, which continues to show signs of weakness as the post-COVID rebound fades, also weighed on the yuan, which yesterday briefly fell past 7.2 per dollar for the first time since November.

“Developments in China, where the central bank cut its reference interest rate by 10 basis points, continue to point to a slower-than-predicted post-pandemic recovery in the world’s second-largest economy,” said ActivTrades analyst Ricardo Evangelista.

“With China’s economy struggling to regain momentum, the headwinds for the global economy get stronger.”

And Stephen Innes at SPI Asset Management said investors could not expect much from Beijing by way of support measures.

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