Asian shares cautiously higher as Powell speech nears

SYDNEY : Asian shares were cautiously higher on Friday, while the dollar firmed slightly as traders and investors anxiously awaited a speech from Federal Reserve Chair Jerome Powell that could offer clues on the U.S. central bank's rate-hike path.

The guarded optimism is likely to extend into Europe. The pan-region Euro Stoxx 50 futures added 0.4 per cent, German DAX futures were up 0.41 per cent and FTSE futures were 0.23 per cent higher.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent on the day. Resources-heavy Australia shares gained 0.9 per cent while Japan's Nikkei advanced 0.6 per cent.

A surge in Chinese tech shares listed in Hong Kong, buoyed by hopes for an audit deal between the United States and China, run out of puff but was up 0.4 per cent, while Chinese shares, gripped by domestic economic worries and Fed rate hikes, wobbled.

The Wall Street Journal reported on Thursday that Washington and Beijing are nearing an agreement that allows American accounting regulators to travel to Hong Kong to inspect audit records of U.S.-listed Chinese companies.

Overnight on Wall Street, stocks rose while U.S. Treasury yields slipped, as investors digested comments from Fed officials who continued hammering the point that they will drive rates up and keep them there until inflation has been squeezed from the economy.

"So it is a fair bet that the Powell speech will take a similar turn today," said Robert Carnell, regional head of Research, Asia-Pacific, at ING.

"If so, the most likely market reaction would be a rise in yields at both the front and back of the yield curve, a sell-off in equities and dollar strength as markets seem to have been positioning themselves for a more supportive set of comments."

Investors have pared back expectations that the Fed could pivot to a slower pace of rate hikes as U.S. inflation remains at 8.5 per cent on an annual basis, well above the Fed's 2 per cent target. But Powell's speech on Friday (1400 GMT) will be scrutinised for any indication that an economic slowdown might alter the Fed's strategy.

Interest rate futures now imply a 60 per cent chance of a 75 basis point (bps) Fed hike in September.

"The experience of Jackson Hole 2021 will make the Fed Chair cautious in making the same error twice. That itself argues against his messaging looking too far forward, or, erring on the dovish side," said Alan Ruskin, macro strategist at Deutsche Bank.

"Markets have however largely taken this on board, which risks a small, short-lived 'buy the rumour, sell the fact' technical bond rally, sell the USD, and relief equity trade."

In the currency markets, the dollar firmed by a slight 0.1 per cent against a basket of major currencies. The commodity-exposed Australian fell 0.4 per cent against the greenback while the New Zealand dollars fell 0.5 per cent, giving up some of the strong gains in the previous day.

U.S. Treasury yields held steady on Friday. The yield on benchmark 10-year notes stood at 3.3763 per cent, up 11 basis points for the week, while two-year yield touched 3.3763 per cent, also up by 11 bps.

Oil prices recovered some ground on Friday after slumping by about $2 a barrel in the previous session on the possible return of sanctioned Iranian oil exports and on worries about the impact on fuel demand from rising U.S. interest rates.

Brent crude rose 0.6 per cent to $99.98 per barrel and U.S. crude was up by 0.7 per cent to $93.15 a barrel.

Gold was slightly lower. Spot gold was traded at $1755.64 per ounce.

(Editing by Sam Holmes and Kim Coghill)