Shares turn cautious ahead of Warsh's Jackson Hole debut; FX, bonds hold breath

Shares in Asia experienced caution on Friday following a technology rally driven by Nvidia, while currency and bond markets awaited insights from the Federal Reserve's Chair Kevin Warsh. Oil prices faced a decline as Iran and Oman reached an agreement regarding traffic management in the Strait of Hormuz and revenue sharing, although Washington showed limited interest in re-establishing direct talks with Tehran.

Brent crude dropped 0.4% to $89.33 a barrel, anticipating a weekly decrease of over 5%. Asia-Pacific shares, excluding Japan, increased by 0.2%, while Japan's Nikkei rose 0.5%. Taiwanese shares climbed 0.8% after Nvidia's stock surged nearly 9% following strong earnings and a hint that the AI spending boom would persist for years.

South Korea's KOSPI fell 1.5%, and Hong Kong's Hang Seng rose 0.4%. S&P 500 and Nasdaq futures slipped by 0.2%, while EURO STOXX 50 futures rose by 0.3%. Market focus was on the upcoming Jackson Hole Symposium, where Warsh would speak about U.S. interest rates. Three Fed officials had previously expressed concerns over inflation, but Warsh had avoided providing forward guidance on interest rate changes.

Futures suggested a 35% probability of a Fed rate hike during the September 16 meeting, with expectations of a move by December. While guidance was not anticipated, markets hoped Warsh could alleviate uncertainty surrounding the Fed's reaction function. Longer-dated yields surged after the Fed's July meeting, as Warsh was deemed insufficient in addressing persistent inflation.

Additionally, Warsh was leading a divided Fed, with several policymakers advocating for rate hikes to curb inflation. On Friday, 30-year Treasury yields climbed 1 basis point to 5.2045%, though they fell 7 basis points this week, after briefly surpassing 5.3% last week for the first time since 2007, prompting a Treasury intervention.

Ten-year yields increased 1 bps to 4.6842%, down 5 basis points this week, while two-year yields remained steady at 4.2340%. The U.S. dollar remained stable against major peers at 99.20, up 0.4% for the week, while the Australian dollar was among the top-performing G10 currencies, reaching a three-month high of $0.72 and anticipating a weekly rise of 0.4%.

In commodities, gold declined 0.5% to $4,579 an ounce, with expectations of a minor weekly drop of 0.5%.