San Francisco Frontiers - Markets mixed as traders enter 'defensive mode' with eyes on Fed

More or less flat results in New York offered global investors little direction, leaving them to scrutinise mixed earnings reports for major US lenders.

Not even receding fears of a banking crisis coupled with optimism for a recovery in the world's second-biggest economy were enough to give a meaningful boost to sentiment.

Stephen Innes, of SPI Asset Management, suggested in a note that, with little to go on, "global traders have seemingly moved into defensive mode as the debate goes on whether the Fed is at the top of its hiking cycle".

That debate remained far from settled, with some analysts warning that certain investors' apparent confidence in coming rate cuts was misplaced.

Fed officials themselves seemed split on the way forward, with Atlanta bank boss Raphael Bostic happy for one more hike before holding rates above five percent for a time, and St. Louis counterpart James Bullard favouring taking them as high as 5.5-5.75 percent.

Borrowing costs are currently at 4.75-5 percent.

Paul Mackel, global head of foreign-exchange research at HSBC, urged investors "not get too complacent" amid the relative calm in markets.

"A couple more hikes and then the next thing is, 'Well, what's next?' Are we gonna be facing a much bigger slowdown?" he said on Bloomberg Television.

- Outlook on China -

Investors are also weighing the outlook for the Chinese economy, with data Tuesday showing it expanded a forecast-busting 4.5 percent in January-March, the first quarter it has been unencumbered by growth-sapping zero-Covid restrictions.

The jump was helped by a surge in retail sales in March, but while the readings were healthy, other figures on industrial output and fixed-asset investment came in below par, pointing to an uneven recovery, and weighing on most Asian markets Tuesday.

"The market has been very biased to discount good news in China, but we think the improvement, mainly if inflation picks up, will become harder to ignore over the coming months," Innes said, pointing to "a continued reopening impulse, still-accommodative macro policies and a low base" from the previous year.

Shanghai, Tokyo, Hong Kong, Taipei, Bangkok, Manila and Mumbai were all down Wednesday, while Sydney, Seoul, Wellington, Jakarta and Singapore were up.

London, Paris and Frankfurt all opened down.

The FTSE sank after the release of new data showing UK inflation slowed less than expected to remain stubbornly above 10 percent last month.

"Inflation falling to 10.1 percent in March marks a bittersweet moment as markets had anticipated inflation to dip into the single digits for the first time since last summer," said Srijan Katyal, global head of strategy and trading services at international brokerage ADSS.

"However, the decline in inflation is still welcome news for consumers across the country."

- Key figures around 0730 GMT -

Tokyo - Nikkei 225: DOWN 0.2 percent at 28,606.76 (close)

Hong Kong - Hang Seng Index: DOWN 1.1 percent at 20,416.47

Shanghai - Composite: DOWN 0.7 percent at 3,370.13 (close)

Euro/dollar: DOWN at $1.0970 from $1.0975 on Tuesday

Pound/dollar: UP at $1.2467 from $1.2425

Dollar/yen: UP at 134.55 yen from 134.10 yen

Euro/pound: DOWN at 87.99 pence from 88.26 pence

West Texas Intermediate: DOWN 0.5 percent at $80.42 per barrel

Brent North Sea: DOWN 0.5 percent at $84.31 per barrel

New York - Dow: FLAT at 33,976.63 (close)

London - FTSE 100: DOWN 0.4 percent at 7,879.25

A.Smith--SFF