Australia

Australian shares are expected to tumble this morning following losses across global markets. Although Wall Street saw declines on Tuesday, US stocks have pushed higher so far this year while the economy has proven resilient.

ASX futures were slipping Wednesday morning, having lost 24 points or 0.3% as of 6:00am.
US stocks dipped on Tuesday to kick off a short week of trading, stalling a rally that has seen indices climb to their highest levels of the year.

The S&P 500 fell 0.5%. The Dow Jones Industrial Average shed more than 200 points, down 0.7%. The Nasdaq Composite edged 0.2% lower.

Major indices have marched higher in recent weeks as enthusiasm around artificial intelligence sent investors flocking to shares of mega-cap tech stocks. The tech-heavy Nasdaq Composite is coming off its eighth consecutive weekly gain, its longest winning streak since 2019. The S&P 500 rose for five straight weeks, its longest stretch since 2021.

In commodity markets, Brent crude oil dipped 0.1% to US$75.98 a barrel while gold shed 0.7% to US$1,936.22.

Australian government bonds were mixed, with the 2 Year yield lower at 4.14% and the 10 Year yield higher at 4.02%. US Treasury notes were higher, with the 2 Year yield increasing to 4.68% and the 10 Year yield climbing to 3.72%.

The Australian dollar slipped to 67.88 US cents from its previous close of 68.51. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged up to 96.78.

Asia

Chinese shares closed mixed after the People’s Bank of China announced a modest rate cut on the one- and five-year loan prime rates, which dashed some investor hopes for large-scale stimulus. Developers weighed on the market as the 10bp cut to the five-year LPR, which serves as the benchmark interest rate for mortgages, undershot expectations. Poly Developments dropped 2.1% and China Vanke declined 1.3%. Software makers were among gainers. Beijing Kingsoft Office Software rose 6.8% and iFlytek added 6.9%. The Shanghai Composite Index dropped 0.5% to 3240.36 and the Shenzhen Composite Index ended 0.05% lower, while the ChiNext Price Index rose 0.3%.

Hong Kong shares ended lower, extending losses after modest lending rate cuts by the PBOC dashed expectations. The Hang Seng Index fell 1.5% to 19607.08. "The size of the cuts today was somehow different than expectation," said Citi economists in a research note. Tech companies weighed on the market, with the Hang Seng Tech Index dropping 2.5%. Meituan declined 3.4%. Alibaba Group retreated 1.5%, paring some of its morning losses after announcing a reshuffling of top executives. Developers also declined. The Hang Seng Mainland Properties Index dropped 3.85%, as Country Garden lost 6.8% and Longfor Group fell 4.9%.

Japan's Nikkei Stock Average edged 0.1% higher to close at 33388.91, led by trading and technology companies. News that Warren Buffett has further increased his stake in trading firms is a sign that the billionaire has gotten more comfortable deploying capital in Japan than in Taiwan or China, the APAC Strategy Team at Saxo Markets said in a commentary. Mitsubishi Corp. climbed 3.7% and Mitsui & Co. gained 3.3% while Rohm added 3.1% and SoftBank Group was up 2.8%.

India's benchmark Sensex index closed 0.25% higher at 63327.70. Investors are likely to focus on US Fed Chair Jerome Powell's testimony before Congress later this week for cues on whether he will strike a hawkish tone on monetary policy, said Vishnu Varathan, Asia & Oceania Head of Economics & Strategy at Mizuho Bank. Gainers on the index included Tata Motors, which added 3.1%, HCL Technologies, which was up 2.7% and Tech Mahindra, which advanced 1.3%. Decliners included Bajaj Finance, which slid 1.9%.

Europe

European stocks closed lower on Tuesday, following the People’s Bank of China’s cut in lending rates, which was less accommodative than expected. The pan-European Stoxx Europe 600 dropped 0.6%, the French CAC 40 shed 0.3% and the German DAX lost 0.6%.

The United Kingdom’s FTSE 100 shed 0.3% to 7569 points, following widespread weakness among global stocks, CMC Markets analyst Michael Hewson said in a note. The People’s Bank of China’s decision to cut loan prime rates was seen as too dovish by investors, prompting a fall in basic resource stocks and the energy sector, Hewson added. Miner Anglo American led a broad list of underperformers, with shares closing down 4%, followed by NatWest and Prudential, down 2.9% and 2.5% respectively.

North America

US stocks dipped on Tuesday to kick off a short week of trading, stalling a rally that has seen indices climb to their highest levels of the year.

The S&P 500 fell 0.5%. The Dow Jones Industrial Average shed more than 200 points, down 0.7%. The Nasdaq Composite edged 0.2% lower.

Major indices have marched higher in recent weeks as enthusiasm around artificial intelligence sent investors flocking to shares of mega-cap tech stocks. The tech-heavy Nasdaq Composite is coming off its eighth consecutive weekly gain, its longest winning streak since 2019. The S&P 500 rose for five straight weeks, its longest stretch since 2021.

"The markets have become a little bit extended from a valuation and sentiment perspective," said Dave Grecsek, managing director in investment strategy and research at Aspiriant.

Investors have turned optimistic about stocks. Bullish sentiment is at the highest level since November 2021, according to the latest American Association of Individual Investors survey. As a contrarian indicator, high levels of optimism among investors could signal a decline in stocks ahead.

The S&P 500 is up 14% this year, trading at about 19 times projected earnings over the next 12 months, according to FactSet. That is up from a multiple of roughly 17 at the beginning of the year and higher than the five-year average of 18.6. Market participants often use the ratio of price to earnings as a gauge for whether stocks appear cheap or expensive.

In economic data, US housing starts for May came in higher than expected, driven by both single-family and multifamily projects. Shares of home builders rose, with PulteGroup adding 1.9% and D.R. Horton gaining 1.6%.

The strong housing market indicator is the latest signal showing the US economy remains robust even as the Federal Reserve attempts to quell inflation through aggressive interest rate increases. Fed officials held interest rates steady last week after 10 consecutive increases, but signaled they were prepared to raise rates next month if the economy and inflation do not cool more.

"We keep expecting a recession, but all of the indicators are pointing towards a very slow crawl out of the inflation spiral," said Victoria Bills, chief investment strategist at Banrion Capital Management. "Inflation is going to continue to be very sticky."

Fed Chair Jerome Powell is set to testify before Congress on Wednesday and Thursday. Market participants will be attuned to messaging from central bank officials that could provide clues about the path of rates moving forward.