Key facts
- Asian shares showed caution on Friday ahead of a speech by Federal Reserve Chair Kevin Warsh.
- Oil prices were set for weekly losses as Iran and Oman agreed on traffic administration in the Strait of Hormuz.
- Taiwanese shares rose 1.2% after Nvidia's strong overnight performance, while South Korea's KOSPI fell 1%.
- Markets are awaiting Warsh's remarks at the Jackson Hole Symposium for guidance on U.S. interest rates.
- Longer-dated Treasury yields had risen significantly after the Fed's July meeting.
- The Australian dollar reached a three-month high against the U.S. dollar.
Asian shares adopted a cautious stance on Friday, following a rally driven by Nvidia's strong performance, as markets awaited Federal Reserve Chair Kevin Warsh's speech for clarity on U.S. interest rate policy. Currency and bond markets held steady ahead of the address.
Oil prices were on track for weekly losses, with Brent crude easing 0.1% to $89.63 a barrel, influenced by an agreement between Iran and Oman regarding traffic in the Strait of Hormuz. Despite this, Washington has shown minimal interest in resuming direct talks with Tehran.
MSCI's broadest index of Asia-Pacific shares outside Japan saw a slight increase of 0.1%, while Japan's Nikkei rose 0.5%. Taiwanese shares gained 1.2% after Nvidia's significant overnight jump, fueled by robust results and optimistic signals about the longevity of the AI spending boom. Conversely, South Korea's KOSPI declined by 1%, and Hong Kong's Hang Seng was down 0.3%.
Futures for the S&P 500 and Nasdaq were down 0.1%, while EURO STOXX 50 futures edged up 0.3%. All attention is focused on the Federal Reserve's Jackson Hole Symposium, where Chair Kevin Warsh is scheduled to speak. Several Fed officials have previously expressed concerns about persistent inflation, but the central bank's chief has refrained from offering explicit forward guidance on interest rates.
Market futures suggest approximately a 35% probability of a Fed rate hike at its September meeting, with a move fully priced in by December. Analysts at ANZ noted that while forward guidance is not expected, markets hope Warsh's speech will reduce uncertainty regarding the Fed's reaction function. They cautioned that insufficient clarity could lead to adverse market reactions, especially given recent volatility in rates markets.
Longer-dated Treasury yields had surged following the Fed's July meeting, as Warsh's previous remarks were perceived as lacking concrete steps to address high inflation. He is also leading a divided Federal Reserve, with some policymakers advocating for rate increases to curb price pressures. On Friday, 30-year Treasury yields were stable at 5.1973%, down 8 basis points for the week after briefly exceeding 5.3% for the first time since 2007, which prompted an intervention by the U.S. Treasury to increase its buyback program. Ten-year yields remained steady at 4.6723%, down 7 basis points for the week, while two-year yields held at 4.2279%, showing little change for the week.
The U.S. dollar was largely unchanged against major currencies, trading at 99.12 on Friday, but was up 0.3% for the week. The Australian dollar was a top performer among G10 currencies, reaching a three-month high of $0.72 and heading for its ninth consecutive weekly gain, following a strong inflation report that led to a significant repricing of the Reserve Bank of Australia's interest-rate outlook.
In commodity markets, gold prices slipped 0.3% to $4,587 an ounce, on track for a small weekly decline of 0.2%.