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Asia shares cautious in case Powell closes rate door

11 July 2019

SYDNEY, July 10 ― Asian shares inched ahead today while higher Treasury yields lifted the dollar as markets wondered if the world's most powerful central banker would confirm or confound expectations for U.S. policy easing this month.

Shares of the MSCI AC Asia Pacific Index outside Japan also added 0.4%. Europe's subdued start reflected pre-event caution rather than how the day would pan out.

London's FTSE bobbed in and out of the green, Paris rose after better-than-expected French industrial data. They had implied a 25 per cent probability of an aggressive cut before Friday's upbeat jobs report.

Stocks in Asia looked set to trade mixed after USA equities made little headway and investors awaited clues on policy from Federal Reserve Chair Jerome Powell.

A key measure of USA inflation - the core consumer price index, due Thursday - is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.

The market has priced in a potential rate cut by the Fed at its policy meeting on July 30-31.

"If we see softer-than-expected inflation data tomorrow and if the advance second-quarter GDP (gross domestic product) reading comes in well below 2.0% on July 26th, we will see the case grow for the first cut to be a 50-basis-point one", said Edward Moya, senior market analyst at OANDA in NY.

He still thought the Fed would cut by 25 basis points this month - the first United States cut since the financial crisis - but whether it keeps going was much less clear.

Elsewhere, Kansas City Fed president Esther George said United States inflation was unlikely to surge anytime soon, but noted that keeping interest rates too low for too long could put financial stability at risk.

In Shanghai, the CSI 300 deleted 6.39 points, or 0.2%, to 3,786.74 The consumer price index in China rose 2.7% year-on-year in June, in line with expectations.

Powel's comments come at a sensitive time for both the Fed and the USA administration, with President Donald Trump proposing that the U must also do some currency interventions to bolster the economy.

Overnight, Atlanta Fed President Raphael Bostic said the central bank was debating the risks and benefits of letting the U.S. economy run "a little hotter".

Meanwhile, U.S. and Chinese trade officials held "constructive" talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said.

Wall Street had been dully circumspect, with the Dow ending yesterday down 0.08 per cent, while the S&P 500 added 0.12 per cent and the Nasdaq 0.54 per cent.

The two-year Treasury yield, a proxy for market sentiment about interest rate policy, was last 7.5 basis points lower at 1.8297%.

In Asian trading, the index that tracks the greenback against six other major currencies was at 97.518 after touching 97.588 on Tuesday, which was the highest since June 19.

The yield on 10-year Treasuries fell two basis points to 2.04%.

The dollar also gained to 108.92 yen, though the French data helped the euro recover to $1.1225, still down from its $1.1412 of just a couple of weeks ago.

The Canadian dollar was on the defensive ahead of a rate meeting by the Bank of Canada in case policy makers tried to slow the currency's recent rally. U.S. West Texas Intermediate (WTI) crude futures shed 0.42% to $57.42.

Brent crude futures rose 64 cents to $64.80, while USA crude gained 82 cents to $58.65 a barrel.

Asia shares cautious in case Powell closes rate door