Asia cautious as everything rides on dovish Powell

Markets turn cautious and vigilant as Powell seizes centre stage

MSCI's broadest index of world stocks was trying to shake off three days of modest losses, though a muted morning for Europe and lower Wall Street futures markets underscored the pre-event caution. E-Mini futures for the S&P 500 ESc1 were flat, while EUROSTOXX STXEc1 and FTSE FFIc1 futures pointed to small opening gains in Europe.

Japan's Nikkei had also finished lower and Chinese blue chips barely budged as data showed inflation remained stubbornly subdued. Germany's 10-year yield fell 27 basis points to -0.27 per cent. Britain's 10-year yield gained 77 basis points to 0.765 per cent. They had implied a 25 per cent probability of an aggressive cut before an upbeat U.S. jobs report on Friday.

"Unless you get some huge red flags from the testimony over the next two days, we are going to enter into a more accommodative environment", Anna Han, equity strategist at Wells Fargo Securities, told Bloomberg TV in NY.

He still thought the Fed would cut by 25 basis points this month - the first U.S. cut since the financial crisis - but whether it keeps going was much less clear.

"The real interest is what happens thereafter", Mellor said.

Powel's comments come at a sensitive time for both the Fed and the United States administration, with President Donald Trump proposing that the U must also do some currency interventions to bolster the economy.

"There has been a total shift in monetary policy - quantitative tightening is off the table and we're back to some mild form of quantitative easing or stable central bank balance sheets", said Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs.

Meanwhile, U.S. and Chinese trade officials held "constructive" talks on trade by phone on Tuesday, White House economic adviser Larry Kudlow said.

The Dow Jones Industrial Average was down 22.65 points, or 0.08 percent, to 26,783.49.

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The cooling in USA rate fever has seen bonds give back just a little of their huge rally, with yields on two-year Treasuries rising to 1.909 per cent from the recent trough of 1.696 per cent.

The benchmark 10-year Treasury yield was at 2.067%, up from a 2-1/2-year low of 1.9390% reached on July 3. Should Powell sound less dovish than expected during his testimony, the Dollar Index could push higher with 97.80 acting as a level of interest.

Against the dollar, the euro was steady at $1.1208 after hitting $1.1194, which was the lowest in almost three weeks.

The Mexican peso began to recover after sliding on Tuesday when Finance Minister Carlos Urzua suddenly resigned, citing "extremism" in economic policy.

The Canadian dollar CAD= was on the defensive ahead of a rate meeting by the Bank of Canada in case policymakers tried to slow the currency's recent rally.

Gold dipped 0.9% to $1,406.17 an ounce.

Elsewhere Wednesday, oil prices jumped more than two percent after a closely watched industry report showed a massive drop in United States stockpiles last week, while traders also cheered reports that Russian output fell in July to its lowest in almost three years.

Brent crude LCOc1 futures rose 64 cents to $64.80, while US crude CLc1 gained 82 cents to $58.65 a barrel.

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