San Francisco Frontiers - Equity markets struggle as traders await Fed boss testimony

The retreat extended a subdued start to the week, with investors unimpressed by China's efforts to boost its economy, including a fresh interest rate cut that was smaller than expected.

All three major US indices as well as the top European markets closed in the red on Tuesday, and Asian investors picked up the baton in a similar mood.

Hong Kong sank around two percent and has now given back all the gains made in last week's rally, while Shanghai was more than one percent down.

There were also losses in Sydney, Wellington, Seoul, Manila and Bangkok, though Tokyo, Singapore, Taipei and Mumbai chalked up gains.

London sank as data showed UK inflation unchanged last month, confounding forecasts for a drop. The figures come a day before the Bank of England is expected to hike interest rates again as it struggles in its battle against aggressive price rises.

Paris also dropped though Frankfurt edged higher.

All eyes are on Washington, where Fed Chair Powell will make a semiannual appearance before Congress.

His comments will be closely scrutinised for clues about the direction of the Fed's campaign to fight soaring inflation with interest rate hikes.

"He will come on and try to remain hawkish," ANZ Bank's Mahjabeen Zaman told Bloomberg Television, saying there was still a risk of further hikes.

The US central bank last week held rates steady after 10 straight increases, but signalled more hikes to bring prices under control.

The anxiety over Powell's testimony built on top of disappointment on market floors this week with Beijing's moves to try and revive the Chinese economy.

The People's Bank of China reduced its benchmark five-year rate by 10 basis points on Tuesday, less than the 15 points expected, though it did meet forecasts for a 15-point reduction in the one-year rate.

Uncertainty over the Chinese economy, which continues to show signs of weakness as the post-Covid rebound fades, also weighed on the yuan, which on Wednesday briefly fell past 7.2 per dollar for the first time since November.

"Developments in China, where the central bank cut its reference interest rate by ten basis points, continue to point to a slower-than-predicted post-pandemic recovery in the world's second-largest economy," said ActivTrades analyst Ricardo Evangelista.

"With China's economy struggling to regain momentum, the headwinds for the global economy get stronger."

And Stephen Innes at SPI Asset Management said investors could not expect much from Beijing by way of support measures.

"We expect to see another wash, rinse and repeat (stocks) rally ahead of further policy easing measures to be announced in the next few weeks, especially on fiscal, housing and consumption," he wrote in a note.

"But the magnitude of stimulus should be smaller than in previous easing cycles, and that is when investors seriously begin to doubt China is in a fiscal position to deliver a mega monetary or fiscal deluge that is desperately needed to support its spluttering post-COVID recovery."

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 0.6 percent at 33,575.14 (close)

Hong Kong - Hang Seng Index: DOWN 2.0 percent at 19,218.35 (close)

Shanghai - Composite: DOWN 1.3 percent at 3,197.90 (close)

London - FTSE 100: DOWN 0.3 percent at 7,546.15

Euro/dollar: UP at $1.0922 from $1.0918 on Tuesday

Pound/dollar: DOWN at $1.2730 from $1.2766

Dollar/yen: UP at 142.13 from 141.40 yen

Euro/pound: DOWN at 85.80 pence from 85.50 pence

West Texas Intermediate: UP 0.3 percent at $71.37 per barrel

Brent North Sea crude: UP 0.2 percent at $76.03 per barrel

New York - Dow: DOWN 0.7 percent at 34,053.87 (close)

-- Bloomberg News contributed to this story. --

A.Clark--SFF