Asia report: Markets make modest gains after Powell speech

Markets in the Asia-Pacific region closed mostly higher on Tuesday as investors digested comments from US Federal Reserve chair Jerome Powell.

In a speech delivered in Washington overnight, Powell indicated that second-quarter inflation readings provided increased confidence that inflation was sustainably returning towards the Fed’s target.

“Jerome Powell’s comments were seen as leaning towards a more cautious approach, leading to expectations of an interest rate cut in September,” said TickMill market analyst Patrick Munnelly.

“The possibility of Donald Trump returning to the White House has influenced trading and is on the minds of investors.”

Munnelly said Powell's remarks, possibly his last before the Fed's policy meeting, indicated that recent data could lead to the inflation rate reaching the Fed's target of 2%.

“This has caused a shift in market expectations, with traders now anticipating a significant easing of rates.”

Most markets make modest gains in wake of Powell speech

Japan’s stock markets saw modest gains, with the Nikkei 225 rising by 0.2% to close at 41,275.08, while the Topix increased by 0.34% to 2,904.50.

Notable performers on Tokyo’s benchmark included Taiyo Yuden, which surged 9.36%, Kawasaki Heavy Industries, up 6.17%, and Murata Manufacturing, which gained 5.54%.

Chinese markets posted slight increases, with the Shanghai Composite edging up 0.08% to 2,976.30 and the Shenzhen Component rising 0.86% to 8,877.02.

Major gainers in Shanghai were Orient Group, which jumped 10.53%, Beijing Bashi Media, up 10.18%, and Dazhong Transportation Group, climbing 10.11%.

In contrast, Hong Kong’s Hang Seng Index fell by 1.6% to 17,727.98.

Leading the declines were Ping An Insurance, which dropped 5.41%, Orient Overseas International, down 4.63%, and Tingyi, which decreased by 4.62%.

South Korea’s Kospi inched up by 0.18% to 2,866.09, with the top performers including Han Kook Steel, which soared 26.53%, Daewon Pharm, up 14.75%, and Hyundai Construction Equipment, which gained 11.07%.

Australia’s S&P/ASX 200 dipped by 0.23% to 7,999.30.

Significant losers in Sydney included Summerset Group Holdings, down 4.93%, Clarity Pharmaceuticals, which fell 4.26%, and Bellevue Gold, decreasing by 3.37%.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 increased 0.51% to 12,184.49.

Leading the gains were Meridian Energy, up 3.68%, Fletcher Building, which rose 2.56%, and Mercury NZ, increasing by 2.51%.

In currency markets, the dollar gained 0.2% on the yen, last trading at JPY 158.37.

The greenback also rose 0.2% against the Aussie to AUD 1.4823, and by 0.12% on the Kiwi, changing hands at NZD 1.6481.

Oil prices declined, with Brent crude futures last down 0.73% on ICE at $84.23 per barrel, and the NYMEX quote for West Texas Intermediate dropping 0.82% to $81.24.

Powell remarks suggest Fed could be moving towards rate cuts

In economic news, US Federal Reserve chair Jerome Powell expressed increased confidence in the Fed's efforts to manage inflation, citing three favourable inflation readings from the second quarter of this year.

Speaking at the Economic Club of Washington overnight, Powell highlighted that consumer prices, excluding volatile food and energy components, rose at an annualised rate of 2.1% during the second quarter.

That was still higher than the Fed's preferred Personal Consumption Expenditures (PCE) price index, which was expected to release its June data next week.

Powell emphasised the progress made, stating, "In the second quarter, actually, we did make some more progress on taming inflation.

“We've had three better readings, and if you average them, that's a pretty good place.”

He added that the readings increased the Fed's confidence that inflation was returning to its 2% target sustainably.

That suggested that a shift towards interest rate cuts could be approaching, although the Fed was awaiting further confirmation from upcoming data before making any policy changes, Powell inferred.

In Japan, the tertiary industry index for May fell short of expectations, registering at -0.4%, compared to the +0.1% anticipated by economists.

That was a notable decline from the +2.2% reading in the prior month.

The tertiary industry index, which measures the change in the total value of services purchased by businesses, is considered a leading indicator of economic health.

A lower-than-expected reading is seen as bearish for the yen, as it suggests weaker economic activity in the services sector.

Reporting by Josh White for Sharecast.com.