Asia cautious as everything rides on dovish Powell

Asia cautious as everything rides on dovish Powell”

European stock markets were set to follow Asia and USA markets lower.

Observers said that while a big cut - of 50 basis points - has all but been dismissed, the Fed is expected to unveil at least a 25 point reduction at its next gathering this month.

Seoul rose 0.4 percent, while Wellington jumped 0.6 percent and Taipei gained 0.5 percent with Manila and Jakarta also up.

The jobs figures "have been a good reminder that the market may have gone well ahead of itself when it comes to the pricing of an eventual monetary easing in the United States", Ipek Ozkardeskaya, senior market analyst at London Capital Group, said in a note on Tuesday.

Meanwhile, markets weighed in the ongoing US-China trade talks and escalating Japan-South Korea trade tensions. Hong Kong's Hang Seng rose 0.5% to 28,248.14, while the Shanghai Composite inched up 0.1% at 2,931.18.

The benchmark S&P 500 lost 0.5 per cent to 2,976.

Apple's suppliers in Japan, such as Murata Manufacturing and Taiyo Yuden, fell 2.1% to 3.4%.

Still, money markets are pricing in a 95 per cent probability of a 25-basis-point rate cut at the central bank's July 31 meeting, according to FedWatch.

Every sentence Federal Reserve Chairman Jerome Powell speaks to Congress this week is sure to be parsed by investors who expect - and hope - the Fed will cut interest rates later this month for the first time in a decade.

Prior to the employment report, the Fed was expected to slash the interest rate target-currently at 2.25-2.5%-by as much as 50 points to counteract a slowing economy.

Overnight, Atlanta Fed bank president Raphael Bostic let nothing out of the bag by saying the central bank was debating the risks and benefits of letting the US economy run "a little hotter".

"The re-adjustment in expectations did push the dollar higher and had a negative effect on Asia but Europe has been supported by investors saying "whatever the Fed does, the ECB (European Central Bank) will still cut", said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

"After all, there is that small thing called "credibility issues", so why on Earth would the Fed want to lead markets down the primrose path?"

Against the dollar, the euro was little changed at $1.1204 after hitting $1.1194, which was the lowest in almost three weeks. Investors also think there is a higher chance the Fed will not cut rates at the September meeting.

The dollar changed hands at 108.78 yen, having risen in the previous session to its highest in more than a month.

The dollar index.DXY, which measures the greenback against a basket of six major currencies, rose 0.13%, while the euro dipped 0.1% to $1.1206 EUR=. USD/TRY was down 0.4% to 5.7127, but is still up over 1.5% from Friday.

Brent crude LCOc1 futures rose 59 cents to $64.75, while USA crude CLc1 gained 80 cents to $58.63 a barrel. U.S. West Texas Intermediate (WTI) crude futures shed 0.4% to $57.46.

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