Shares turn cautious ahead of Warsh speech; FX, bonds hold breath

Shares in Asia experienced a shift to caution following Nvidia's technology-driven rally, as currency and bond markets awaited comments from Federal Reserve Chair Kevin Warsh on US interest rates. Oil prices were set for a weekly decline as Iran and Oman agreed on regulating traffic in the Strait of Hormuz and sharing revenues, although the US showed little enthusiasm for resuming direct talks with Tehran.

Brent crude eased by 0.1% to $89.63 per barrel, but was anticipated to drop over 5% weekly. The MSCI's Asia-Pacific index outside Japan saw a modest rise of 0.1%, while Japan's Nikkei climbed 0.5%. Taiwanese shares rose 1.2% after Nvidia surged nearly 9% overnight, following strong financial results and signaling that the AI spending boom has long-term potential.

South Korea's KOSPI declined by 1%, and Hong Kong's Hang Seng fell by 0.3%. The S&P 500 and Nasdaq futures slipped by 0.1%, while EURO STOXX 50 futures increased by 0.3%. All eyes are on Warsh's speech at the Federal Reserve's Jackson Hole Symposium, where he is expected to discuss US interest rates. Three Fed officials have already warned about sticky inflation, but Warsh has resisted providing guidance on future interest rate movements.

Market futures suggest a 35% probability of a rate hike during the September 16 meeting, with expectations for a move by December. While analysts at ANZ do not anticipate Warsh offering forward guidance, markets hope for reduced uncertainty surrounding the Fed's reaction to economic conditions. Warsh's speech may contribute to market volatility; if he provides little guidance, it could trigger adverse market reactions.

Longer-dated yields have risen since the Fed's July meeting, as Warsh was perceived as offering insufficient concrete steps to tackle persistent high inflation. He is overseeing a divided Fed, with several policymakers advocating for interest rate hikes to curb price pressures. On Friday, 30-year Treasury yields remained unchanged at 5.1973%, down 8 basis points this week, after briefly reaching 5.3% for the first time since 2007.

This prompted an unexpected intervention from the US Treasury to boost its buyback program. Ten-year yields remained steady at 4.6723%, down 7 basis points this week, while two-year yields held constant at 4.2279% and were steady throughout the week. The US dollar remained stable against major peers at 99.12, having risen 0.3% for the week.

The Australian dollar was among the best-performing currencies in the G10, reaching a three-month high of US$0.72 and poised for a weekly gain of 0.4%, marking the ninth consecutive week of gains. In commodity markets, gold dipped 0.3% to $4,587 an ounce and was expected to experience a minor decline of 0.2% this week.