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Wall Street shares muted, Treasury yield higher with Powell in focus

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After rallies in overseas markets led by hopes for a China reopening, Wall Street equities were going in the opposite direction on Wednesday as investors were cautious ahead of an appearance by U.S. Federal Reserve chief Jerome Powell.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 1.63% higher as traders cheered an easing of COVID-19 restrictions in China’s Guangzhou city. European shares also gained ground after falling for two sessions.

U.S. Treasury yields rose after data showed the world’s largest economy grew more than expected in the third quarter, reinforcing expectations that the Fed keep raising interest rates well into next year, though at a slightly slower pace.

This appeared to add to the wary mood among U.S. equity investors ahead of Powell’s speech at the Brookings Institution in Washington later. Investors will monitor it for clues about the Fed’s rate path in what is expected to be Powell’s last public comments on policy ahead the Fed’s Dec 13-14 meeting.

“Investors are sitting on their hands waiting to see what’s going to be said by Powell,” said Burns McKinney, portfolio manager at NFJ Investment Group in Dallas who expects that if Powell’s comments include anything unexpected, “it’ll be a hawkish surprise.”

“The risk is probably more to the downside. I don’t think he’s going to put himself in the position of saying something that could be perceived as dovish,” McKinney said.

The Dow Jones Industrial Average (.DJI) fell 172.71 points, or 0.51%, to 33,679.82, the S&P 500 (.SPX) lost 7.26 points, or 0.18%, to 3,950.37 and the Nasdaq Composite (.IXIC) added 22.93 points, or 0.21%, to 11,006.71.

The pan-European STOXX 600 index (.STOXX) rose 0.73% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.10%.

In currencies, trading in the dollar was choppy. The greenback was last higher against a basket of currencies.

But earlier it lost ground after the ADP National Employment report showed that U.S. private payrolls increased far less than expected in November, suggesting demand for labor was cooling amid high interest rates.

“You have the data potentially reaching a turning point, which is celebrated by the market because it reinforces that expectation that the Fed is not only downshifting, but maybe yields are nearing a limited runway in terms of how much more tightening there is to go,” said Mazen Issa, senior FX strategist at TD Securities in New York.

The dollar index rose 0.187%, with the euro down 0.24% to $1.0302.

The Japanese yen weakened 0.53% versus the greenback at 139.44 per dollar, while sterling was last trading at $1.1916, down 0.31% on the day.

In U.S. Treasuries, benchmark 10-year notes were up 3.1 basis points to 3.779%, from 3.748% late on Tuesday. The 30-year bond was last up 1.1 basis points to yield 3.8135%, from 3.802%. The 2-year note was last was up 6.2 basis points to yield 4.5351%, from 4.473%.

Investors looked past disappointing business activity data from China and an escalation of protests in some parts of the country over stringent COVID-19 lockdowns, pinning their hopes instead on a quicker reopening of the world’s No.2 economy.

Hong Kong’s Hang Seng Index rallied more than 2% (.HSI), although Japan’s blue-chip Nikkei fell 0.2% (.N225).

Oil prices rose on signs of tighter supply, a weaker dollar and optimism for a second consecutive day about a potential recovery of demand in China.

U.S. crude recently rose 2.52% to $80.17 per barrel and Brent was at $85.44, up 2.9% on the day.

Spot gold added 0.2% to $1,752.40 an ounce. U.S. gold futures gained 0.15% to $1,751.00 an ounce.

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