Asian equities were mixed on Wednesday, with stocks climbing in South Korea and Japan but falling in Australia. The fluctuation comes ahead of the release of U.S. inflation data for August, which is expected to provide insights into the future path of Federal Reserve interest rates.
On Tuesday, a rout in technology companies dragged down the U.S. stock market. The Nasdaq 100 slid 1.1%, while Apple Inc (NASDAQ:AAPL)., which unveiled the iPhone 15 and other products, dropped almost 2%. The S&P 500 also fell by 0.6%.
Oil traded near a 10-month high amid strains in global supplies. West Texas Intermediate crude was little changed on Wednesday after reaching a near 10-month high on Tuesday due to production cuts by OPEC+ leaders, contributing to projections for the tightest supply in a decade. This surge in oil prices sent energy shares higher and added to concerns about inflation.
In response to elevated inflation and increasing U.S. debt issuance, investors demanded higher yields during an auction of U.S. 10-year Treasury notes on Tuesday, leading to the highest yield since 2007. The two-year Treasury yields, more sensitive to imminent Federal Reserve moves, remained above 5%.
The dollar edged lower on Wednesday, while major currencies like the yen traded within narrow ranges. Swap traders are currently betting that the Federal Reserve will maintain its policy at a meeting next week and see approximately a 50% chance of a rate hike in November.
This shift in expectations has led to a significant change in investors' equity allocation - a rush towards U.S. equities and an exodus from emerging markets, as revealed by Bank of America Corp (NYSE:BAC).'s latest global fund manager survey. Emerging markets equity allocation fell to a net 9% overweight in September from 34%, marking its lowest reading since November 2022. In contrast, allocation to U.S. equities rose by 29 percentage points to a net 7% overweight, the first overweight reading since August last year.
In other news, tech leaders including Tesla (NASDAQ:TSLA)'s Elon Musk and Meta Platforms (NASDAQ:META)' Mark Zuckerberg are set to attend a forum on the future of AI convened by Senator Chuck Schumer on Wednesday. The meeting is expected to discuss the impact of AI on various sectors including finance and technology.
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