Asian markets drop as traders await Powell speech

Federal Reserve Board Chairman Jerome Powell will deliver a key speech on Friday at the central bank’s annual Jackson Hole conference. (AFP pic)

HONG KONG: Equities stuttered in Asia today 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 past 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 added 0.2%, Shanghai was barely moved and Tokyo ended down 0.3%. Sydney fell almost 1%, Singapore shed 0.3% and Wellington was 0.9%.

Taipei finished flat and Seoul added 0.2%.

In early trade, London rose 0.5%, Paris added 0.8% and Frankfurt was up 0.5%.

The Fed releases minutes of its July meeting later today 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 yesterday 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 at 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 and the dollar were well up 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 5%  over the past week, with support also coming from trade talks hopes.

Key figures around 0810 GMT

Tokyo – Nikkei 225: DOWN 0.3% at 20,618.57 (close)

Hong Kong – Hang Seng: UP 0.2% at 26,270.04 (close)

Shanghai – Composite: FLAT at 2,880.33 (close)

London – FTSE 100: UP 0.5% at 7,159.33

Euro/dollar: DOWN at US$1.1095 from US$1.1097 at 2040 GMT

Pound/dollar: DOWN at US$1.2136 from US$1.2166

Euro/pound: UP at 91.42 pence from 91.20 pence

Dollar/yen: UP at 106.50 yen from 106.23 yen

West Texas Intermediate: UP 15 cents at US$56.28 per barrel (new contract)

Brent North Sea crude: UP 34 cents at US$60.37 per barrel

New York – Dow: DOWN 0.7% at 25,962.44 (close)