Australia

Australian shares are set to open higher on Wednesday after a positive trading day for major US indices even as investors parsed remarks from Federal Reserve officials indicating a higher-for-longer outlook for interest rates.

ASX futures are up 0.4% as of 8am on Wednesday, suggesting yesterday's 0.3% loss will be reversed.

Investors will be watching for job vacancy, retail trade and November consumer price index data, all set to be released on Wednesday.

In the US, the S&P rose 0.7%, while the Dow Jones Industrial Average gained 0.6%. The technology-focused Nasdaq Composite advanced 1%.

In his first public appearance of the year, Federal Reserve Chair Jerome Powell said at a forum sponsored by the Swedish central bank that the Fed's independence is essential for it to battle inflation.

Traders are betting on a 25-basis point rate hike at the Fed's upcoming policy meeting in February.

In commodity markets, Brent crude oil added 0.51% to $US80.06 a barrel and gold gained 0.22% to US$1,875.91.

In local bond markets, the yield on Australian 2 Year government bonds edged down to 3.28% while the 10 Year dipped to 3.71%. Overseas, the yield on 2 Year US Treasury notes fell to 4.26% while the yield on 10 Year US Treasury notes climbed to 3.62%.

The Australian dollar dipped to 68.84 US cents down from the previous close of 69.12. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged up to 96.17.

Asia

Chinese shares ended mixed as the country's manufacturing and retail sectors continued benefiting from reopening optimism. Auto-manufacturers outperformed all other sectors in Tuesday trading after briefly turning negative in the morning following news that Berkshire Hathaway had cut its stake in BYD Co. The stock slid as much as 2.3% in early trade but finished 1.2% higher. Stocks in the financial and property sectors declined. Ping An Insurance lost 3.3% and Gemdale Corp. shed 1.0%. The Shanghai Composite Index closed 0.2% lower at 3169.51 and the Shenzhen Composite Index edged up 0.3%. The ChiNext Price Index ended 1.4% higher.

Hong Kong stocks ended lower, pulling back slightly after Monday's multi-month closing high. The benchmark Hang Seng Index fell by 0.3% to settle at 21331.46. Chinese property developers led declines as the sector retreated from recent strong gains driven by policy-support optimism. Longfor shed 3.0%, Country Garden was 2.7% lower and China Resources Land fell 2.3%. Consumer-goods and services companies further weighed on the market, with Budweiser Brewing Co. APAC down by 2.4% and Haidilao dropping 1.2%.

Japanese stocks ended higher, led by gains in electronics and machinery stocks as hopes grew for less aggressive tightening from the Fed. Lasertec gained 4.4% and Daikin Industries advanced 5.3%. Eisai climbed 4.8% after the US FDA approved its new Alzheimer's drug. The Nikkei Stock Average rose 0.8% to 26175.56.

Europe

Often considered laggards on the global markets stage, stock indices across the European region in recent months have outperformed major US indices. Germany's DAX index and France's CAC 40 have each risen 18% or more in the past three months through Tuesday, more than double the roughly 8% gain for the S&P 500. The UK's benchmark FTSE 100 has also surged, putting it a little more than 2% away from reaching a record.

The turnabout underscores how drastically economic expectations have shifted regarding Europe, which only months ago was engulfed by anxieties over the war in Ukraine, a possible energy crisis, and record-high inflation. Those issues haven't gone away completely, though investors have felt more comfortable continuing to wade back into investing on the continent.

The start of a new year hasn't derailed their optimism either. Gains for European indices have so far this year outstripped those in the US, even after Tuesday's drop in stocks across Europe. By the end of the trading day, the FTSE 100 lost 0.4%, the DAX edged down 0.1%, and the CAC shed 0.5%. The S&P 500, in contrast, added 0.3% in midday trading.

European stocks have "shown a lot of resilience, probably more resilience than was expected," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

The strength of Europe's comeback is the result of both mechanics and fundamentals. Compared with the US, stock indices in Europe are not dominated by the kinds of big technology stocks that have dragged down the US market. In a higher interest rate environment, investors' preference for value stocks -- such as banks, retailers and energy companies -- has benefited cyclically tilted European indices.

Recent gains in European stock markets have also been driven by a stronger economic backdrop. A warmer-than-expected winter has relieved investors' worries that an energy crisis could torpedo the economy. Falling energy prices have also helped bring inflation down. Last week, data from the European Union's statistics agency showed that the annual rate of inflation eased in December for the second consecutive month, with consumer prices rising at their slowest pace since August.

North America

US stocks rose Tuesday, even as investors parsed remarks from Federal Reserve officials indicating a higher-for-longer outlook for interest rates.

The S&P 500 rose 27.16 points, or 0.7%, to 3919.25, while the Dow Jones Industrial Average edged up 186.45 points, or 0.6%, to 33704.10. The technology-heavy Nasdaq Composite advanced 106.98 points, or 1%, to 10742.63.

Investors have been cheered in recent weeks by signs that inflation is moderating and hints that central-bank officials are mulling when to stop raising interest rates. Still, Fed policy makers have sounded a cautious note that even when rate increases end, monetary policy will have to remain tight.

Fed Chair Jerome Powell said Tuesday that the central bank is strongly committed to lowering inflation, even though interest-rate increases to restrain economic growth could fuel political blowback.

"The critical question on everyone's mind right now is: When are we going to see the Fed's tightening peak?" said Stephen Innes, managing partner at SPI Asset Management. "We keep seeing the Fed come out and make these really hawkish comments, but the market isn't really pricing that in."

Mary Daly, president of the San Francisco Fed, and Raphael Bostic, president of the Atlanta Fed, in comments Monday both highlighted that interest rates would need to rise above 5% and remain there for some time. The Fed's benchmark rate is currently at a range of between 4.25% and 4.5%.

JPMorgan Chief Executive Jamie Dimon said Tuesday that the Fed may need to raise interest rates to 6% to fight inflation.

Even with a tentative end in sight for rate rises, investment managers are feeling cautious about the months ahead as the impact of tighter monetary policy on company earnings and economic growth takes time to be felt.

With those effects building, the economy could enter a recession by the middle of the year, said Hani Redha, a global multiasset portfolio manager at PineBridge Investments. "The lagged effects of the tightening haven't really hit us yet in any significant way," he said.

Investors are eyeing monthly inflation figures due Thursday and coming fourth-quarter earnings as potentially important market drivers. Earnings season will gather speed later this week, with a raft of corporate reports from major banks including Bank of America, JPMorgan Chase and Citigroup due on Friday.

"This is a really complicated environment to dissect right now," said John Porter, chief investment officer and head of equity at Newton Investment Management. "I'm cautious about the outlook over the next six months."

While a potential recession has been broadly telegraphed, some investors don't expect bank earnings to be affected until later this year.

"Given that there was still a meaningful amount of volatility in markets last year, that could prove to be a meaningful tailwind for banks," said Alexandra Wilson-Elizondo, head of multiasset retail investing at Goldman Sachs Asset Management. "What we are really going to be looking for is which management teams have managed the unwind of pandemic distortions while preparing for this potential slowdown."

Shares of cryptocurrency exchange Coinbase Global rose $4.96, or 13%, to $43.23 after the company said it would eliminate around 20% of its staff and enact broad cost cuts. The stock plummeted more than 80% in 2022.

Retailer Bed Bath & Beyond shares jumped $0.45, or 28% to $2.07 after the company said it plans to accelerate cost cuts as it struggles to remain solvent.