Asia markets mostly higher; Fed meeting set to kick off
Shares in mainland China rose on the day. The Shanghai composite was up slightly at 2,890.16 and the Shenzhen component gained 0.27% to 8,804.32, while the Shenzhen composite was higher by 0.163% to 1,504.57.
In Hong Kong, the Hang Seng index added more than 1%, as of its final hour of trading, with shares of Chinese tech heavyweight Tencent jumping more than 1.5%.
Over in South Korea, the Kospi gained 0.38% to close at 2,098.71 as shares of biopharmaceutical firm Celltrion rose 1.46%. Meanwhile, the S&P/ASX 200 in Australia added 0.6% to end its trading day Down Under at 6,570.00.
Japanese stocks bucked the overall trend. The Nikkei 225 slipped 0.72% to close at 20,972.71, as shares of index heavyweights Fast Retailing, Softbank Group and Fanuc fell. The Topix index also declined 0.72% to end its trading day at 1,528.67.
Asia-Pacific Market Indexes Chart
“Recent speeches by Fed officials, including Fed chair Jay Powell, have indicated a growing wariness of the inflation outlook and a willingness to act if required. We expect the (Federal Open Market Committee) to formalise this view on Wednesday by hinting that near‑term cuts to the Fed funds rate are coming. We expect the Fed will cut the Fed funds rate in December, but the risk is skewed to earlier cuts,” Kim Mundy, currency strategist at Commonwealth Bank of Australia, wrote in a note.
The Fed will make its monetary policy announcement on Wednesday.
One economist told CNBC that other central banks such as those in Japan and Indonesia, also set to have their own meetings later in the week, could take direction from the Fed.
“If the Fed is easing, it certainly means that they expect (that) the U.S. economy ... is slowing. If the U.S. economy is slowing, then very likely the global economy will be feeling that ... pain as well,” Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics, told CNBC’s “Squawk Box” on Tuesday.
That, he said, would give the central banks regionally “a chance to ease as well and try to add some stimulus.”
Currencies and oil
The Japanese yen traded at 108.25 against the dollar after touching levels above 108.6 in the previous session.
The Australian dollar tumbled to $0.6830 as the minutes from the June policy meeting of the country’s central bank showed that further monetary easing was “more likely than not, ” and was necessary to push employment down. It last changed hands at $0.6839.
Oil prices were lower in the afternoon of Asian trading hours, with the international benchmark Brent crude futures contract dipping 0.61% to $60.57 per barrel, while U.S. crude futures declined 0.48% to $51.68 per barrel.
Tensions remained high in the Middle East following attacks on two oil tankers in the Gulf of Oman, with the Pentagon preparing to send about 1,000 more U.S. troops to the region.
“I think this is still mostly posturing on the part of the Trump administration,” Jacob Shapiro, director of analysis at Geopolitical Futures, told CNBC’s “Capital Connection” on Tuesday. “You’re not gonna invade Iran or take out the Iranian navy just by deploying a couple of thousand extra troops to the region, that would have to be a much bigger deployment.”
“We’re still not talking a militarily significant deployment of U.S. troops here,” he said.
— Reuters and CNBC’s Fred Imbert contributed to this report.
European stocks close higher following Draghi speech; Stoxx 600 hits one-month high
European Markets: FTSE, GDAXI, FCHI, IBEX
The pan-European Stoxx 600 recovered from an early drop to end the session 1.8% higher, marking a one-month high. All sectors and major bourses were in positive territory, with basic resources leading the gains and surging by almost 3%.
Central banks will remain in focus this week. The U.S. Federal Reserve is scheduled to start a two-day monetary policy meeting on Tuesday, with investors on the look out for clues about potential rate cuts.
Stocks on Wall Street also surged on Tuesday, with the Nasdaq gaining 1.7% after Trump announced he would meet his Chinese counterpart Xi Jinping at the upcoming G-20 summit in Japan. Trade tensions between the world’s two largest economies have been putting markets under pressure in recent months.
Back in Europe, the six remaining Conservative party hopefuls to replace British Prime Minister Theresa May will face a second round of voting by secret ballot Tuesday, with Brexiteer Boris Johnson the clear frontrunner despite refusing to participate in Sunday’s live television debate.
Looking at individual stocks, shares of German chipmaker Infineon fell 2% on Tuesday, as the company launched an accelerated capital increase to raise 1.5 billion euros ($1.68 billion) toward its planned acquisition of Cypress Semiconductor.
Steel producer Arcelormittal rose to the top of the European benchmark during afternoon trade, its shares gaining more than 6% as Trump’s planned meeting with Xi lifted optimism for a Sino-U.S. trade deal.
At the other end of the Stoxx 600, Danish hospital equipment maker Ambu plunged 14% after the company cut its outlook for the year. Silicon wafer supplier Siltronic fell almost 8% after its third profit warning in 2019.
Dow surges more than 350 points on hopes for a China trade deal and an easy Fed
The Dow Jones Industrial Average jumped 366 points as 3M and Boeing outperformed. The S&P 500 climbed 1.1% while the Nasdaq Composite advanced 1.5%. The S&P 500 also traded about 1% from its all-time intraday high of 2,954.13, which was reached May 1.
Trump said in a tweet he “had a very good telephone conversation ” with Xi. He added: “We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” The summit will start on June 28.
Boeing and Caterpillar shares, two trade bellwethers, rose 5% and 2.8%, respectively. Deere shares also gained more than 3%. Semiconductor stocks jumped on Trump’s tweet. The VanEck Vector Semiconductor ETF (SMH) surged more than 4%, led by strong gains from Nvidia and Micron Technology.
“Certainly, there’s ground for optimism,” said Michael Geraghty, equity strategist at Cornerstone Capital Group. “However, we have to remember there have been a lot of negotiations between China and the U.S. where they seem to be close to a deal and then things fell apart.”
Hope for a U.S.-China trade deal diminished last month after both countries raised tariffs on billions of dollars worth of their goods. Trump also floated the possibility of imposing tariffs on more Chinese imports.
Lucas Jackson | Reuters
The Fed is expected to leave rates unchanged at this meeting, which starts Tuesday. However, investors will monitor whether policymakers at the central bank lay the groundwork for rate cuts later in the year. Traders are pricing in three rate cuts before year-end, according to the CME Group’s FedWatch tool.
“The market wants to hear words that err towards the Fed cutting rates in July,” said Jennifer Ellison, principal at BOS. “If there’s language that sounds like they’re backing off from that, it’s going to spook the market. Part of the reason the market is up today is because of the trade stuff, but also the anticipation around the Fed continuing to be very dovish.”
The meeting comes after jobs growth and manufacturing activity in May slowed down. This, coupled with lingering worries over U.S.-China trade has led to increasing worries over the global economy.
The Fed’s decision is scheduled to be announced Wednesday at 2 p.m. ET. Fed Chair Jerome Powell will also hold a news conference after the announcement.
“Short of easing tomorrow (about 20% priced in), Powell needs to send a strong enough message to the market” that rate cuts are coming, Gregory Faranello, head of U.S. rates at Amerivet Securities, said in a note. “I do feel, though, the Fed needs to take back some control here. We have gone from the market chasing the Fed (4 hikes) to the Fed chasing the market (3 cuts) in a very short period of time.”
Investors also cheered the prospects of more stimulative measures from Europe. Mario Draghi, president of the European Central Bank, said Tuesday: “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.”
Draghi’s comments sent the euro sliding against the dollar. They also jolted European stocks. The Stoxx 600 index climbed more than 1%, along with the German Dax and the French CAC 40.
Trump criticized Draghi’s remarks, noting additional ECB stimulus makes it “unfairly easier ” for Europe to compete with the U.S.
Stocks briefly fell from their highs after Bloomberg reported the White House was looking for legal ways to demote Powell from his spot at the Fed. Larry Kudlow, director of the National Economic Council, later said the president was not planning to demote Powell.
Stocks have been on fire this month, rebounding from steep losses in May. The major averages are all up more than 6% in June.
“There’s really been two major drivers: the trade optimism and the optimism around interest rates,” said James Ragan, director of wealth management at D.A. Davidson. “There are still headwinds out there. We’d feel better fading the rally a little bit. The market may be getting a bit ahead of itself in the short-run. But if we get through that meeting next week and there is a trade agreement and the Fed cuts rates, you could make the argument for a strong rally moving forward.”
—CNBC’s Sam Meredith contributed to this report.