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Asia morning update: Nothing trumps the Fed, for now

Short for a brief slip of the markets following the release of emails relating to President Donald Trump’s Russian ties, US markets had broadly held on to recent levels. 

Federal Reserve
Source: Bloomberg

Once again, Asian markets may find little to glean from overnight markets and are expected to remain in consolidation ahead of key events.

Pressure cooker anticipation

US markets was seen sliding early Tuesday following concerns that the latest email thread, highlighting the communication between President Donald Trump’s eldest son and Russia, could aggravate the situation in the investigation into Trump-Russia ties. Separately, US Republicans were also noted to have been back in the works to draft a new healthcare bill before the end of the week. This brings the attention back to healthcare stocks after the delay of a vote on the previous iteration of the bill.

Despite the news surrounding Trump and the new US administration, the pressure cooker anticipation for the events ahead had kept prices broadly unchanged from the previous close. The comprehensive S&P 500 index closed down 0.08% on Tuesday, buoyed by the energy and IT sectors.

Notably, however, financial stocks had been the worst performer, shedding 0.68% overnight. Comments from Federal Reserve Governor Lael Brainard, sounded off an alarm that the Fed may be near its term in hiking rates, jostling treasury yields lower in the session. Financial stocks, which has been holding steady ahead of US bank earnings, corresponded with a slight dip.

The comments from a close ally of Federal Reserve chair Janet Yellen at the dawn of her testimony certainly heightens the focus on what the Fed chair may touch on. With the heavy anticipation, I would look to both the US markets and USD/JPY in the currency space for reactions. Specifically for USD/JPY, yield differentials had kept movements relatively pronounced. Any disappointment in the form of a less-than-hawkish tone held by Fed chair Yellen could quickly sink USD/JPY towards the near-term support at $111.80. For indices, prices had largely been range-bound at some 2407 to 2450 levels for the S&P 500 index. Reactions should not be ruled out but the key mover remains with earnings releases later in the week.

Asian markets

Early movers in the region have so far been seen with mixed movements, whereby the Japanese markets came under pressure from USD/JPY dips post Fed’s Brainard’s comments. North Asian markets including the Taiwan and South Korean bourses maintained near neutral changes at the open while the Hong Kong and Singapore markets could see some support from higher oil prices.

Ahead of the Fed, Wednesday’s Asian hours would find releases including Japan’s tertiary industry index, production data from Malaysia and Singapore’s retail sales figures. UK jobless claims and ILO employment rate will also be released in the day, with the key attention set ahead on the series of events including Fed Yellen’s testimony and the Bank of Canada monetary policy decision.

Yesterday: S&P 500 -0.08%; DJIA 0.00%; DAX -0.07%; FTSE -0.55%

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