Asian equities edge lower

Asian markets cautious ahead of Powell testimony

Wall Street closed slightly lower overnight, as stellar bank earnings results could not overcome the nerves caused by much higher than forecast US inflation data. Markets seem determined to wait for the Powell congressional testimony this evening before deciding whether more decisive inflation-related surgery is required. The net effect has been to push Asian markets lower after previous solid sessions, as investors take some risk off the table.

Muddying the waters have been more geopolitical noises between China and the US overnight. Hong Kong appears to be funnelling China IPOs towards Hong Kong, while President Biden warned about the risks of US companies doing business in Hong Kong and other parts of the mainland. It seems more restrictions are on the way from the US, and combined with US inflation nerves, the Shanghai Composite has eased by 0.80%, with the CSI 300 falling 0.90%. Hong Kong is also 0.80% lower.

Meanwhile, the Nikkei 225 has eased by 0.30% and the Kospi by 0.20%. Taipei is flat, with Singapore and Kuala Lumpur down 0.20%, with Jakarta and Bangkok reducing by 0.30%. By contrast, a federal support package for lockdown-hit Sydney and NSW has steadied the ship in Australia, with both the ASX 200 and All Ordinaries 0.10% higher.

European equities are likely to play catchup to Wall Street overnight and open slightly lower today. But the overriding impression I have is that today’s gentle retreat in Asia looks more precautionary. That sentiment could change this evening if Mr Powell starts saying taper too much, in which case, Asian markets are likely to have a tough day at the office tomorrow.

After Tuesday’s surge in US inflation, the markets will be looking for some insights from Powell’s testimony. Another juicy inflation reading for July could make August’s Jackson Hole symposium and the September FOMC key inflexion points for financial markets for 2021

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