Australia

Australian shares are set to slide after Wall Street finished lower amid a mixed set of earnings reports as investors await tomorrow’s US Federal Reserve decision. Locally, fresh inflation data is due at 11.30am and expected to show a record jump in prices.

ASX futures were down 36 points or 0.5% at 6675 as of 8.00am on Wednesday, pointing to a dip at the open.

US stocks opened in the red overnight, with losses building as the day progressed. The S&P 500 closed Tuesday lower by 1.2%. The tech-focused Nasdaq Composite declined 1.9%, and the Dow Jones Industrial Average shed 0.7%.

The major indexes are holding on to modest July gains, but persistent inflation and signs of a slowing economy are giving investors no leave to relax. This week, the busiest of the second-quarter earnings season, also brings a Fed policy meeting at which US central bankers are expected on Wednesday to raise interest rates by 0.75 percentage point in their effort to tame rising prices.

As higher borrowing costs begin to cool economic output, investors are focused on how well household finances and corporate profits are holding up.

"We've been so spoiled over the last couple years by how every single earnings report was meeting or exceeding expectations," said Wayne Wicker, chief investment officer at MissionSquare Retirement. "Certainly as we've gotten into 2022, that has not been the case."

In commodity markets, Brent crude oil dipped 0.4% to US$104.70, while gold edged down 0.1% to US$1733.90.

In local bond markets, the yield on Australian 2 Year government bonds edged up to 2.67% while the 10 Year slipped to 3.33% ahead of today’s inflation data . Overseas, the yield on 2 Year US Treasury rose slightly to 3.05% and the yield on the 10 Year US Treasury notes advanced to 2.81%.

The Australian dollar dropped to 69.37 US cents, down from 69.53 at the previous close. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies climbed to 98.88.

Asia

Chinese stocks finished higher, rebounding from recent declines thanks to a lift from the property sector. Sentiment on the real-estate sector has improved amid stronger expectations of government intervention. Poly Developments advanced 5.8% and China Vanke added 3.1%, while Gemdale and China Merchants Shekou Industrial each jumped more than 8%. Auto makers recovered some losses from the previous session, with Great Wall Motor and BYD Co. up 0.5% and 0.6%, respectively. Pharma stocks were laggards. Jiangsu Hengrui Medicine slid 6.0% and Shanghai Fosun Pharmaceutical lost 3.1%. The Shanghai Composite Index rose 0.8% to 3277.44, the Shenzhen Composite Index gained 1.0% and the ChiNext Price Index closed 0.3% higher.

Hong Kong stocks extended early gains to end 1.7% higher at 20905.88, led by tech and property stocks. Property stocks climbed amid reports that China is planning to set up a property relief fund of up to $44 billion to help distressed developers. Country Garden Holdings jumped 13%, China Resources Land added 3.6% and Longfor Group rose 3.7%. Among tech stocks, Meituan rose 1.3% and JD.com gained 1.8%. Alibaba Group rose 4.8% after the company said it would pursue a primary listing in Hong Kong.

The Nikkei Stock Average ended 0.2% lower at 27655.21 amid jitters over the economic outlook and business operation costs. Shipping stocks fell, with Nippon Yusen losing 1.9% and Mitsui O.S.K. Lines dropping 1.0%. Videogame developer Koei Tecmo gave up 3.4% after its 1Q net profit slid. W-Scope, which makes lithium-ion battery separators, surged 16% after raising its 2022 revenue and net profit projections. Near-term focus will likely be on the FOMC decision later this week as well as on Japanese corporate earnings.

Europe

European stocks closed mixed after EU countries reached a watered-down agreement to reduce gas consumption amid fears of a Russia supply cutoff and after the International Monetary Fund lowered its global growth forecasts.

The pan-European Stoxx Europe 600 and London’s FTSE 100 traded flat but the German DAX dropped 0.9% and the French CAC 40 declined 0.4%.

"European Union plans to curb gas demand highlight how countries will enforce measures that could stifle economic activity in a bid to wean themselves off Russian imports despite lacking sufficient alternatives," IG analyst Joshua Mahony writes. Meanwhile, the latest IMF report highlights the twin forces of high inflation and weaker growth facing the Federal Reserve as it begins its two-day meeting today, he says.

UBS Group shares slid 9.4% after the bank reported a small increase in second-quarter earnings, but the results missed analysts' expectations.

North America

US stock indexes ended lower as a mixed set of earnings reports traced an unsteady path forward for markets ahead of a critical Federal Reserve meeting this week.

Stocks opened in the red, with losses building as the day progressed. The S&P 500 closed Tuesday lower by 1.2%. The tech-focused Nasdaq Composite declined 1.9%, and the Dow Jones Industrial Average shed 0.7%.

The major indexes are holding on to modest July gains, but persistent inflation and signs of a slowing economy are giving investors no leave to relax. This week, the busiest of the second-quarter earnings season, also brings a Fed policy meeting at which US central bankers are expected on Wednesday to raise interest rates by 0.75 percentage point in their effort to tame rising prices.

As higher borrowing costs begin to cool economic output, investors are focused on how well household finances and corporate profits are holding up.

"We've been so spoiled over the last couple years by how every single earnings report was meeting or exceeding expectations," said Wayne Wicker, chief investment officer at MissionSquare Retirement. "Certainly as we've gotten into 2022, that has not been the case."

Shares of Walmart fell by $10.04, or 7.6%, to $121.98 after the country's largest retailer warned that higher prices for food and fuel were causing consumers to pull back. Target shares were dragged down, too, dropping $5.68, or 3.6%, to $151.81. General Motors shares gave up $1.18, or 3.4%, ending at $33.34 after the car maker's second-quarter profit fell short of estimates.

Other earnings reports revealed bright spots. General Electric shares added $3.15, or 4.6%, to $71.51 after the company reported better-than-expected results. Consumer-product manufacturer 3M jumped $6.63, or 4.9%, to $140.75 after it said it would spin off its healthcare business to create two public companies.

Traders on Wednesday will parse figures from Bristol-Myers Squibb and Kraft Heinz, expected in the premarket hours. They'll also react to major reports that landed after Tuesday's closing bell: Microsoft's sales and earnings were below what analysts had forecast, and Alphabet reported its slowest quarterly sales growth in two years.

Wall Street is hungry for clues about how well different corners of industry are withstanding inflation, rising interest rates and many consumers' souring view of the economy. Some investors are worried that the fast tightening of financial conditions will compound economic pressure brought on by Covid-19, supply-chain disruptions and the Ukraine war to tip the US economy into recession.

"You could see a long period of slower growth," said Georgina Taylor, a multiasset fund manager at Invesco. "There's a lot of what's going on right now that can't be modeled."

That challenges stock investors to project how corporate valuations will float or sink with the economic tide. A slowing economy could even boost equity prices if it leads the Fed to pare back its anti-inflation fight, said Kristy Akullian, senior strategist at iShares Investment Strategy.

"I do think a Fed pause would probably be the signal that a lot of market participants are looking for that it's safe to get back into the equity markets," she said.

For now, anxiety continued to spill into the bond market, where Tuesday trading pushed the yield on the 10-year Treasury note down to 2.786% from 2.819% Monday. The benchmark government bond has rallied over the past month as investors seek a safe harbor and revise down their bets on how high the Fed will raise interest rates before changing course. Bond yields fall when bond prices rise.

Debt investors are trying to forecast how the central bank will balance its twin jobs: getting inflation under control while avoiding a deep contraction that could damage the still-strong labor market. Falling yields indicate that many traders foresee the Fed pivoting to easier money to cushion a slowing economy. But they may be underestimating just how stubborn inflation has become, said Thanos Bardas, global co-head of investment-grade debt at Neuberger Berman.

"I'm very skeptical the Fed will be able to cut rates as soon as the market believes," Mr. Bardas said.