Asian shares edged ahead on Thursday after Wall Street got a boost from strong retail results, while bonds retreated as U.S. policy makers sounded conflicted on whether to cut interest rates as sharply as markets were wagering.
MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> inched up 0.1%, continuing the see-saw pattern of recent sessions.
Japan’s Nikkei <.N225> added 0.4% and Australian shares <.AXJO> 0.3%, while E-Mini futures for the S&P 500 <ESc1> rose 0.2%.
On Wall Street, the Dow <.DJI> had gained 0.93%, while the S&P 500 <.SPX> rose 0.82% and the Nasdaq <.IXIC> 0.90%. [.N]
The bounce was led by retailers, with Target Corp <TGT.N> surging 20% and Lowe’s Cos Inc <LOW.N> 10% after upbeat results.
Minutes of the Federal Reserve’s July meeting showed policymakers were deeply divided over whether to cut interest rates, but were united in wanting to signal they were not on a preset path to more easing.
Indeed, while a “couple” of Fed members favoured a deeper cut of half a point, “several” favoured no change at all.
That reluctance did not seem to gel with the market’s aggressive pricing for over 100 basis points of easing by the end of 2020. <FEDWATCH>
Treasuries were sold in response and two-year yields <US2YT=RR> rose to 1.59% and away from last week’s low of 1.467%. [US/]
“The key message from the Fed minutes is that the 25 basis-point cut in July was just a calibration, a mid cycle adjustment and not the start of a new easing cycle,” said Rodrigo Catril, a senior FX strategist at NAB.
Hopes for U.S. fiscal stimulus also got a knock when President Donald Trump reversed course and said he was not looking at cutting payroll taxes.
Much now depends on how dovish Fed Chair Jerome Powell chooses to be in his Jackson Hole speech on Friday.
“The most sensitive comments will revolve around whether Powell is willing to reaffirm a view that the easing cycle is a “mid-cycle adjustment” or align more closely to market thinking,” said Alan Ruskin, macro strategist at Deutsche Bank.
“If he sticks to the old language as is most likely, it would affirm that he is still confident that the strength of consumption, in combination with modest Fed easing, will be sufficient to keep the recovery broadly on track.”
That would be more hawkish than expected and would likely lift the dollar further, he said.
The dollar had already bounced overnight, rising to 98.263 on a basket of currencies <.DXY> from a low of 97.948. It also reached 106.57 yen <JPY=> from a trough of 106.21.
The euro edged back to $1.1089 <EUR=> from a top of $1.1107, not helped by a gloomy economic outlook from Germany’s finance ministry.
A range of manufacturing surveys from across the globe are due later on Thursday and risks are they will show a further slowdown in activity, especially in Europe.
Also due are minutes from the European Central Bank’s last policy meeting and markets are looking for more detail on exactly when and how aggressively it might ease policy.
In commodity markets, spot gold was steady at $1,502.53 <XAU=>.
Oil prices firmed after U.S. government data showed a drawdown in domestic crude stocks. [O/R]
Brent crude <LCOc1> futures rose 25 cents to $60.55, while U.S. crude <CLc1> gained 34 cents to $56.02 a barrel.