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Awaiting the Fed testimony

After adjusting for the overpricing in of rate cuts, the picking up of tech stocks overnight on Wall Street presents a positive lead for Asia markets, though risks persist with the Fed testimony ahead.

Holding pattern

A late surge for Wall Street was seen in the Tuesday session as markets continued to adjust ahead of the key testimony by Fed chair Jerome Powell. As told, the upcoming testimonies on Wednesday and Thursday play a huge part into guiding the market’s expectations just prior to the July Federal Open Market Committee (FOMC). After the latest US jobs report undid some of the market’s dovish expectations for the Fed, the risks of Fed Powell presenting a less as dovish tone remain one that could see to markets re-positioning this week. Fed Powell’s testimony will be scrutinized for both his views on the economic situation and guidance in terms of any upcoming moves. For prices, despite the uptick, the broad consolidation tone remains as seen in the chart below for the S&P 500 index. Immediate support comes in at around 2950.

Separately, reports that US and China had reconnected by phone had contributed in part to the uptick in equities. Talks had been noted to be ‘constructive’ by White House economic advisor Larry Kudlow though both the fact that no details had been confirmed and the uncertainty in how talks will recontinue present a mixed picture that should continue warranting a defensive positioning in markets. Haven assets such as USD/JPY and gold prices were seen reacting little to this, marking minimal impact from lack of fresh developments on the trade matter. Focus ahead to the Fed testimonies as the key events this week ahead of the US CPI data.

Source: IG Charts

Asia open

The lift in tech stocks and the moderate optimism from the US-China contact nevertheless present a relatively benign picture for Asia markets going into the Wednesday session. As said, the focus lies ahead with Fed Powell’s testimony after the Fed chair provided little in his speech on banks’ stress test on Tuesday. China’s PPI and CPI will be due in the day, with the factory inflation one to decline to reflect the slowdown in the economy. Watch for any disappointment that could weigh on Asia markets ahead of the Fed updates.

Yesterday: S&P 500 +0.12%; DJIA -0.08%; DAX -0.85%; FTSE -0.17%

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