Asian markets drop as traders await Powell speech

by AFP/ pic by AFP

HONG KONG –  Equities stuttered in Asia on Wednesday as investors took a step back after recent gains, with focus now turning to a key speech by Federal Reserve boss Jerome Powell at the end of the week.

Rising hopes for China-US trade talks have provided a much-needed lift to markets over the previous two days but with few fresh catalysts, dealers are keeping their powder dry ahead of Friday’s address.

After positive signals from Donald Trump and some of his top advisers on Monday over progress in the talks with Beijing, and an olive branch with the delay of a ban on Huawei purchases, there have been few developments for traders to buy on.

“Our trade-war headline-inspired relief rally appears to have run its course as I suspect there is still a lot of nervousness among US investors as the global economic realities are just too hard to ignore,” said Stephen Innes at Valour Markets.

Hong Kong was flat in the afternoon and Shanghai was barely moved by the close with Tokyo ending down 0.3 percent. Sydney fell almost one percent, Singapore shed 0.3 percent and Wellington was 0.9 percent lower.

Taipei finished flat and Seoul added 0.2 percent.

In early trade, London rose 0.2 percent, Paris added 0.4 percent and Frankfurt was up 0.3 percent.

The Fed releases minutes of its July meeting later Wednesday which will provide an insight into its deliberations when cutting interest rates for the first time since the financial crisis.

But Powell’s talk at the central bankers’ gathering in Jackson Hole, Wyoming is the key event and will be closely pored over for clues about the bank’s plans for next month, with experts unable to agree on whether or not he will announce further cuts.

There has been increased speculation that central banks and governments will step in with stimulus support to head off a global downturn, but analysts warn they could be disappointed by what Powell has to say regarding Fed action.

‘Very far from recession’

Wall Street and Trump “are anticipating that Mr Powell will signal that the Federal Reserve is about to embark on a reinvigorated wave of easing, following its global peers”, said Jeffrey Halley, OANDA senior market analyst for Asia-Pacific.

“The US data of late simply does not support the need for an aggressive easing cycle. Despite the US-China trade tensions making their presence felt in European and Asian data prints, this has simply not happened with the United States to any significant degree.”

Also, Trump on Tuesday insisted the economy was doing well, denying warnings from some quarters – including top economists – that the US was heading for a recession within two years.

“I think the word recession is inappropriate,” he told reporters in the White House. “We’re very far from recession.”

On currency markets, the euro was struggling against the dollar as a political crisis in Italy – the eurozone’s number three economy – offset hopes that Germany’s government would unveil measures to avert a downturn.

Italian Prime Minister Giuseppe Conte resigned and hit out at far-right Interior Minister Matteo Salvini for pursuing his own interests by bringing an end to the government coalition.

President Sergio Mattarella must now decide to form a new coalition or call an election, throwing up more uncertainty and another possible budget standoff with the European Union.

However, the single currency was performing better against the pound as Britain’s exit from the EU without a divorce deal grows increasingly likely.

Oil prices extended gains as data showing a drop in US stockpiles indicated improving demand for the commodity. Both main contracts have risen about five percent over the past week, with support also coming from trade talks hopes.

Key figures around 0720 GMT

  • Tokyo – Nikkei 225: DOWN 0.3 percent at 20,618.57 (close)
  • Hong Kong – Hang Seng: FLAT at 26,229.37
  • Shanghai – Composite: FLAT at 2,880.33 (close)
  • London – FTSE 100: UP 0.2 percent at 7,137.67
  • Euro/dollar: DOWN at $1.1095 from $1.1097 at 2040 GMT
  • Pound/dollar: DOWN at $1.2164 from $1.2166
  • Euro/pound: UP at 91.35 pence from 91.20 pence
  • Dollar/yen: UP at 106.50 yen from 106.23 yen
  • West Texas Intermediate: UP 21 cents at $56.34 per barrel (new contract)
  • Brent North Sea crude: UP 34 cents at $60.37 per barrel
  • New York – Dow: DOWN 0.7 percent at 25,962.44 (close)