Equity markets in China and Japan also pushed higher, while S&P 500 and Nasdaq 100 futures fluctuated after a dip in Wall Street shares on Tuesday.
US House Speaker Nancy Pelosi is continuing a visit to Taiwan that has provoked an angry response from China, but markets for the moment are absorbing the developments as traders contemplate their ramifications.
A dollar gauge dipped along with Treasury yields but the two-year rate remained above 3%. A chorus of Fed officials on Tuesday said the central bank has some way to go to get inflation under control, leading traders to trim wagers on policy easing next year.
The comments from Fed officials including Mary Daly, Loretta Mester and Charles Evans served to highlight the challenging backdrop of rising borrowing costs, price pressures and slowing economic growth confronting markets.
San Francisco Fed president Daly said the Fed has “a long way to go” on reaching price stability around a 2% inflation target. Cleveland counterpart Mester said she wants to see “very compelling evidence” that month-to-month price increases are moderating.
“It’s hard to see any meaningful upside in equities right now,” Xi Qiao, managing director for global wealth management at UBS Group AG, said on Bloomberg Television. “The market is going to trade pretty mixed, stay choppy until we have a little bit more certainty.”
China, which regards Taiwan as part of its territory, announced missile tests and military drills around the island after Pelosi became the highest-ranking American politician to visit in 25 years.
China also halted natural sand exports to Taiwan and some fish and fruit imports from the island.
While fears of an acute deterioration in ties between the US and China appear to have cooled, the ill-will highlights the risk of longer term economic decoupling with an array of potential impacts, such as stickier inflation as supply chains adjust.
China’s Contemporary Amperex Technology, the world’s biggest manufacturer of batteries for electric vehicles, decided to push back, announcing a multibillion-dollar North American plant to supply Tesla and Ford Motor due to tensions raised by Pelosi’s trip to Taiwan, according to people familiar with the matter.
“Pelosi’s trip might exacerbate the already strained US-China relationship, and impede on growth if more counter-productive measures are deployed,” said Bernard Shaw, an Asia bond syndicate banker at Daiwa Capital Markets Singapore Ltd. He added US tariffs on Chinese goods now seem likely to stay in place.
Elsewhere, oil traded at about $94 a barrel ahead of an OPEC crude production meeting. Gold climbed and Bitcoin dropped under $23,000. BM