China realism returns, Powell has spoken

July 27 (Reuters) – A sense of cautious optimism could be the tone across Asia early on Thursday as China’s markets cool down, investors welcome fairly balanced comments from Federal Reserve Chair Jerome Powell and await the European Central Bank’s rate decision.

After a volatile start to markets this week, the concentration of major ‘event risk’ – the Fed and ECB meetings, the Bank of Japan’s policy decision on Friday, and potential details on China’s stimulus measures – may be keeping investors from taking big bets.

That said, some big earnings reports from some of the biggest US tech firms continue to roll in, meaning there could be big price swings in individual stocks and sectors under the hood of the broader indices.

This was in evidence on Wednesday on Wall Street. The Nasdaq fell only 0.1% and ‘big tech’ fell less than 1% but that masked huge moves in some shares which added or wiped out tens of billions of dollars of market cap. Microsoft fell 4%, Snap plunged 15%, while Alphabet surged 5.5%.

Shares in Meta jumped 7% in after-hours trade after the Facebook owner reported stronger-than-expected Q2 revenues and forecast strong Q3 revenues.

Investors in Asia will also wake up to the 11th US interest rate hike since the Fed began hiking rates last year – and the highest rates in 22 years – and a fairly balanced policy outlook for the coming months from Fed Chair Jerome Powell.

He left the door open to further tightening but also said the Fed could stay on hold if the data warranted and stressed that decisions will be made on a meeting-by-meeting basis. His measured remarks helped ensure a fairly subdued day on Wall Street.

The Dow Jones Industrials rose 0.24%, insignificant in itself but at the same time historic – it was the 13th consecutive daily rise, the index’s longest winning streak since January 1987. Few would have imagined then that the market’s biggest ever fall – the 22% crash on Black Monday – was only nine months away.

Back in Asia, a sense of realism returned over the expected measures from Beijing to revitalize the economy. After outsized gains on Tuesday – a 14% surge in property stocks – major indices in China and Hong Kong closed in the red.

The main event on Thursday’s economic calendar is Chinese industrial profits for June, which could underline how weak the economy has been since Covid restrictions were lifted.

Profits have been falling every month for a year, registering double-digit declines every month so far this year. They slumped 18.8% in May.

Here are key developments that could provide more direction to markets on Thursday:

– China industrial profits (June)

– Australia import and export prices (Q2)

– European Central Bank policy decision

(By Jamie McGeever; editing by Deepa Babington)