Asian stocks turn cautious as Powell focuses, yen higher as BOJ chief speaks via Reuters
Written by Stella Qiu
SYDNEY (Reuters) – Asian shares were lower on Friday as the dollar rose from a one-year low as investors remained cautious ahead of a speech by the world's biggest bank that had markets seeking assurances that a U.S. rate cut will begin in September.
The Japanese yen gained 0.3% to 145.77 per dollar while bond yields firmed as Bank of Japan Governor Kazuo Ueda spoke before lawmakers.
Traders see little chance that the BOJ will raise rates in October after the recent sell-off, but Ueda stuck to the text by saying the central bank stands ready to raise rates if the economy and inflation move in line with its forecast.
Data released early this morning showed Japan's core inflation accelerated for the third month in a row, but the drop in the price of the driver suggests there is no urgency for any rapid rate hikes.
Krishna Bhimavarapu, APAC economist at State Street (NYSE:) Global Advisors, expects a stronger yen and the reintroduction of energy subsidies to reduce inflation in the near term.
“If the data comes out as we expect, it could mean that the next hike by the BOJ may not come until December due to fears of some level of inflation.”
On Friday, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4% but was looking for a weekly gain of 0.6%. The terrain was flat near a three-week high.
China's green chips gained 0.3%, although Hong Kong fell 0.4% while South Korea fell 0.5%.
Overnight, Wall Street fell as sentiment turned cautious ahead of Federal Reserve Chairman Jerome Powell's speech in Jackson Hole. Three Fed speakers on Thursday hinted at a rate cut in September, expressing support for a “slow and orderly” approach.
Combined with surveys showing the US economy is still growing at a healthy pace, markets have slightly pushed back the chance of a major rate cut in September to 24%, from 38% the previous day. Quarterly point deductions are net worth.
Robert Carnell, head of regional research, Asia-Pacific, at ING, noted that it is too early for Powell's speech to cheer or disappoint the markets given the market prices, but much will depend on the details.
“Since any decision that deviates from the market values will be based on unknown data at this time, it is difficult to see how Powell can commit without some kind of relief in September, and even then, to prevent data risks,” Carnell said.
Treasury yields edged lower on Friday, gaining overnight for the first time in five sessions. Ten-year yields fell 2 basis points to 3.8426% in Asia and were down 5 bps on the week.
Two-year yields were also down 3 bps to 3.9845% and down 8 bps on the week.
Falling yields pushed the dollar to a one-year low, although it got a reprieve from selling pressure overnight. The euro rose in one year to $ 1.1119, and the main resistance is seen at $ 1.1139.
Wall Street futures rose between 0.2%-0.4% and stocks looked set to end the week lower.
futures were lower at $76.04 a barrel, although they were down more than 3% for the week as rising stocks and a weak demand outlook in China boosted optimism. [O/R]
Gold prices fell 0.7% on the week to $2,488.13 an ounce, having hit a record high of $2,531.6 on Tuesday.
