Asia wrap: Powell to stick to the dual mandate script?

Asian shares were mixed on Friday’s muted trading session. Everyone’s eyes are glued to Fed Chair Jerome Powell's upcoming speech, hoping for some breadcrumbs on just how fast and how deep the Fed plans to slice interest rates.

Let’s cut to the chase: based on market chatter, there’s hardly any appetite for the Fed to go wild, signalling multiple 50bp cuts right now. With 100bp already pencilled in over the next three meetings, even a whisper of half-point moves could send the Fed funds futures curve into a tailspin, crashing straight into the “too dovish for comfort” Fed zone.

Powell’s more likely to play it safe, hammering home the dual mandate, reiterating that they’re riding the data train, and effectively kicking the big decision can down the road until the September 6 payroll report drops.

Meanwhile, the yen is once again playing the role of a fader’s delight—selling on USD/JPY upticks has been the name of the game. Today was no exception, especially after BoJ Governor Kazuo Ueda stepped into the spotlight with a hawkish tone, hinting at a more independent stance from the Ministry of Finance amidst Japan’s stock market rollercoaster. 

Rate hikes are still very much on the table, particularly after that little CPI surprise (2.8% vs. 2.7% year-on-year) added some fuel to the fire. But here’s the kicker—markets are still dragging their feet, with only 10bp priced in by December. We think they’re sleeping on the likelihood of a bigger hike, especially after Ueda quietly removed the “continued accommodative environment” language from the outlook report. That’s a subtle but strong signal saying, “Hey, rate hikes might be closer than you think."