SYDNEY- Asian shares went flat as uncertainty over the outlook for both US interest rates and the chance of global fiscal stimulus sucked the life out of markets.
Moves were miniscule, with MSCI’s broadest index of Asia-Pacific shares outside Japan off 0.2 percent in very light volumes.
Japan’s Nikkei added 0.1 percent, as did Shanghai blue chips. E-Mini futures for the S&P 500 dipped 0.04 percent, while 50 futures eased 0.09 percent.
Wall Street had been saved by surprisingly upbeat results from retailers, which sent Target Corp surging 20 percent and Lowe’s Cos Inc up 10 percent
The Dow ended Wednesday up 0.93 percent, while the S&P 500 rose 0.82 percent and the Nasdaq 0.90 percent.
Less welcome were minutes of the Federal Reserve’s July meeting, which showed policymakers deeply divided over whether to cut interest rates, but united in wanting to signal they were not on a preset path to more easing.
Indeed, while a “couple” of Fed members favored a deeper cut of half a point, “several” favored no change at all.
That reluctance did not seem to gel with the market’s aggressive pricing for more than 100 basis points of easing by the end of 2020.
Treasuries were sold in response and two-year yields were left at 1.58 percent, compared with last week’s low of 1.467 percent.
“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 National Australia Bank.
Hopes for US 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.” – Reuters