SYDNEY, Aug 22 — Asian shares edged ahead today after Wall Street got a boost from strong retail results, while bonds retreated as US policy makers sounded conflicted on whether to cut interest rates as sharply as markets were wagering.
MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.1 per cent, continuing the see-saw pattern of recent sessions.
Japan’s Nikkei added 0.4 per cent and Australian shares 0.3 per cent, while E-Mini futures for the S&P 500 rose 0.2 per cent.
On Wall Street, the Dow had gained 0.93 per cent, while the S&P 500 rose 0.82 per cent and the Nasdaq 0.90 per cent.
The bounce was led by retailers, with Target Corp surging 20 per cent and Lowe’s Cos Inc 10 per cent after upbeat results.
Minutes of the Federal Reserve’s July meeting showed policymakers were deeply divided over whether to cut interest rates, but were united in wanting to signal they were not on a preset path to more easing.
Indeed, while a “couple” of Fed members favoured a deeper cut of half a point, “several” favoured no change at all.
That reluctance did not seem to gel with the market’s aggressive pricing for over 100 basis points of easing by the end of 2020.
Treasuries were sold in response and two-year yields rose to 1.59 per cent and away from last week’s low of 1.467 per cent.
“The key message from the Fed minutes is that the 25 basis-point cut in July was just a calibration, a mid-cycle adjustment and not the start of a new easing cycle,” said Rodrigo Catril, a senior FX strategist at NAB.
Hopes for US fiscal stimulus also got a knock when President Donald Trump reversed course and said he was not looking at cutting payroll taxes.
Second-guessing Powell
Much now depends on how dovish Fed Chair Jerome Powell chooses to be in his Jackson Hole speech tomorrow.
“The most sensitive comments will revolve around whether Powell is willing to reaffirm a view that the easing cycle is a “mid-cycle adjustment” or align more closely to market thinking,” said Alan Ruskin, macro strategist at Deutsche Bank.
“If he sticks to the old language as is most likely, it would affirm that he is still confident that the strength of consumption, in combination with modest Fed easing, will be sufficient to keep the recovery broadly on track.”
That would be more hawkish than expected and would likely lift the dollar further, he said.
The dollar had already bounced overnight, rising to 98.263 on a basket of currencies from a low of 97.948. It also reached 106.57 yen from a trough of 106.21.
The euro edged back to US$1.1089 (RM4.63) from a top of US$1.1107, not helped by a gloomy economic outlook from Germany’s finance ministry.
A range of manufacturing surveys from across the globe are due later today and risks are they will show a further slowdown in activity, especially in Europe.
Also due are minutes from the European Central Bank’s last policy meeting and markets are looking for more detail on exactly when and how aggressively it might ease policy.
In commodity markets, spot gold was steady at US$1,502.53.
Oil prices firmed after US government data showed a drawdown in domestic crude stocks.
Brent crude futures rose 25 cents to US$60.55, while US crude gained 34 cents to US$56.02 a barrel. — Reuters
