Japan Stocks Set to Regain Some Ground After Rout: Markets Wrap

Japanese stocks were poised for a lift early Tuesday following a tepid US session as Federal Reserve Chair Jerome Powell made fresh comments signaling no urgency for further interest-rate cuts. 
Nikkei 225 futures pointed to gains of about 0.7%, a day after the benchmark slumped almost 5% following the ruling party’s leadership race. Sydney shares were set to slip lower, while China and Hong Kong will be closed for holidays. 
In the US, the S&P 500 closed 0.4% higher despite Powell’s cautious stance in saying the Fed will lower interest rates “over time”, while re-emphasizing that the overall economy remains on solid footing in a speech in Nashville. US equity futures edged lower in early trading.
Japanese traders are seeking to shrug off weeks of political insecurity, with Shigeru Ishiba’s victory over Sanae Takaichi wrongfooting investors betting on more monetary stimulus from his rival. A call by the new leader for a national election in a bid to consolidate his rise was broadly welcomed. 
China’s benchmark index, meanwhile, posted the biggest gain since 2008 on Monday. The leap came after three of its largest cities relaxed rules for homebuyers, while the central bank also moved to lower mortgage rates as part of a sweeping stimulus package. 
In the US, the S&P 500 secured its fourth-consecutive quarter of gains — the longest such winning stretch since 2021. The tech-heavy Nasdaq 100 notched a similar run.
“The bull market has survived the year’s historically weakest quarter, the third quarter, and it is likely to remain intact through at least the end of the year, as earnings remain strong, interest rates are moving lower and consumers are still spending,” said Emily Bowersock Hill at Bowersock Capital Partners.
“We expect the fourth quarter to be quite similar to the third quarter – elevated volatility, but with a strong finish,” she added. 
Meanwhile, the world’s biggest bond market pared a historic gain after Powell’s comments, made at the annual meeting of the National Association for Business Economics. Treasury yields were higher, led by the policy-sensitive two-year note which traded around 3.64% after Powell said the US didn’t have the data yet to make a call on the November meeting.
Still, Treasury debt returned 1.4% this month this month through Friday, as measured by the Bloomberg US Treasury Total Return Index. If the advance holds it will be the market’s longest streak of monthly gains since 2010.
Powell was “a tiny bit hawkish at the margin, but the Fed still has a lot of cutting to do,” according to Vital Knowledge’s Adam Crisafulli. The Fed Chair’s remarks seemed to suggest markets should think about a half-point cut instead of three-quarters of a point for the rest of the year, he added.
Swaps traders reined in their rate cut bets which had traded closer to a three-quarter point move before the US open.
While gauging the outlook for Fed rate cuts, investors must contend with a cocktail of risks, including rising tensions in the Middle East and a looming dockworkers’ strike in critical US ports Tuesday.
Chicago Fed President Austan Goolsbee voiced his concerns about a supply shock if a strike drags on. “That’s going to raise the cost of doing business and lead to shortages,” he told Fox Business.
Oil edged higher in early trading after a choppy Monday as investors assessed the risks that Israel’s recent strikes against Hezbollah will widen the conflict in the Middle East. Iron ore fell after closing 7.6% higher in the previous session on optimism Beijing’s fresh stimulus will stoke demand for the steelmaking material. 
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