MSCI’s broadest index of Asia-Pacific shares outside Japan cut earlier losses to be just down 0.1%
Asian shares sputtered on Friday while the dollar rebounded from one-year lows as investors were cautious ahead of a speech by US Federal Reserve Chair Jerome Powell with markets looking for confirmation the country’s rate cuts would start in September.
The Japanese yen added 0.4% to 145.63 per dollar after Bank of Japan Governor Kazuo Ueda flagged a willingness to raise interest rates if the economy and inflation turn out as forecast.
The Nikkei sold off but rose 0.4% higher in the afternoon to reach a new three-week peak as investors decided Ueda was not as hawkish as feared. Domestic yields gained three basis points in modest reactions.
Europe is set for a subdued open with EUROSTOXX 50 futures flat and FTSE futures 0.4% higher. S&P futures and Nasdaq futures gained 0.3% and 0.6% respectively.
Data out early in the day showed Japan’s core inflation rose for a third consecutive month, but a slowdown in demand-drive price gains suggest no urgency for any immediate rate hikes.
Krishna Bhimavarapu, APAC economist at State Street Global Advisors, expects the stronger yen and reintroduction of energy subsidies to slow inflation in the near-term.
If the data evolves as we expect, it could mean that the next BoJ hike may not come until December as fears of rapid inflation ease to an extent, he said.
Traders see very little possibility that the Bank of Japan could hike rates in October after the recent sell-off, but a move in December is priced at 70%.
MSCI’s broadest index of Asia-Pacific shares outside Japan cut earlier losses to be just down 0.1%. It was headed for a weekly gain of 1%.
China’s blue chips added 0.3%, although Hong Kong’s Hang Seng declined 0.3% while South Korea rose 0.1%.
Overnight, Wall Street fell as sentiment turned cautious ahead of the Fed Chair Jerome Powell’s speech in Jackson Hole. Three Fed speakers on Thursday hinted at a rate cut in September, with them voicing support for a “slow and methodical” approach.
According to Robert Carnell, regional head of research, Asia-Pacific, at ING, there was still scope for Powell’s speech to excite or disappoint markets given the market pricing, but much will depend on data.
As any decision that deviates from market pricing will rest on as yet unknown data, it is hard to see how Powell can commit too much beyond some easing of some sort in September, and even then, only barring data accidents, he said.
