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CNBC Daily Open: A projection is not a promise

The trading floor of the New York Stock Exchange prepares for the social media platform Reddit’s initial public offering (IPO) on March 21, 2024 in New York City.
Spencer Platt | Getty Images News | Getty Images

This report is from today's CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

Mid-week slide
Asia-Pacific markets on Wednesday tracked U.S. weakness, with shares of electric vehicle makers hit by underwhelming quarterly sales at industry giants BYD and Tesla. The latter posted its first year-over-year decline in vehicle deliveries since 2020. Japan's Nikkei 225 was down 1%, while Korea's Kospi was down 1.6% and Hong Kong's Hang Seng Index shed 1.1%. U.S. stocks extended their feeble start to the second quarter as the 10-year Treasury yield spiked. Robust economic data and comments from Federal Reserve officials further tempered expectations for a rate cut in June.

Taiwan earthquake
Taiwan Semiconductor Manufacturing Co said all its workers were safe and those who were evacuated have started returning to some factory lines after Taiwan was hit by the strongest earthquake in 25 years early Wednesday. Officials said at least four people have died.

Disney leaks
Ahead of a board vote on Wednesday, Bloomberg and The Wall Street Journal reported that Disney's largest and second-largest shareholders, the index fund manager Vanguard and BlackRock, plan to support Disney's management. Reuters reported Disney's chief executive Bob Iger has enough votes to ward off challenges from activist investors, Nelson Peltz and his Trian Partners, along with Blackwell Capital.

Biden-Xi chat
U.S. President Joe Biden spoke with Chinese President Xi Jinping on the phone for nearly two hours Tuesday, a call the White House described as a "check in" between the two leaders to responsibly manage the strained U.S.-China relationship. On Wednesday, Biden's top economic envoy, Treasury Secretary Janet Yellen, is scheduled to depart for China to hold face-to-face meetings with her counterparts over five days in Guangzhou and Beijing. 

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The bottom line

U.S. Federal Reserve officials are dampening rate cut expectations again, and again.

In comments echoing those of the Federal Open Market Committee's two weeks ago, San Francisco Fed President Mary Daly said Tuesday she expects cuts this year — but wants to see more convincing evidence that inflation has been subdued.

"Three rate cuts is a projection, and a projection is not a promise," Daly said.

Cleveland Federal Reserve President Loretta Mester also said Tuesday she still expects interest rate cuts this year, but ruled out the next policy meeting in May.

To be sure, futures traders expect the Fed to start easing in June and to cut by three-quarters of a percentage point by the end of the year — though recent comments have diminished the odds of a June rate cut.

On Monday though, U.S. ISM manufacturing survey data pointed to a sharp price spike in the sector, inflaming investor worries that inflation may not drop to 2% soon — delaying the Fed's first rate cut.

If that happens though, the implications could be global.

Continued strength in the dollar is already adversely impacting several emerging market currencies in Asia, including the Malaysian ringgit and Indonesian rupiah.

The wide interest rate differentials between the U.S. and Japan is also at least partly responsible for the weak yen, which sank to its weakest against the dollar in more than three decades.

Japan's finance officials have repeatedly raised verbal warnings, but have so far abstained from tangible market intervention — as they did in 2022 when the yen tumbled to 152 to the dollar.

Vishnu Varathan, Mizuho's chief economist for Asia ex-Japan, expects Japanese yen intervention risks to rise. He also expects Chinese officials to up their "intimidation" of offshore Chinese yuan bears.

Volatility is the name of the game.

— CNBC's Jeff Cox contributed reporting for this story.

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