Asia stocks drop as focus turns to Fed testimony

Federal Reserve Shelton

United States stocks finished slightly lower on Friday following a stronger than expected jump in hiring in June, which called into question the speed - but not the likelihood - of interest rate cuts by the Federal Reserve over what remained of 2019.

The Nikkei 225 in Japan slid 0.98 percent while the Topix index was down 0.89 percent.

Investors now focus on Federal Reserve Chairman Jerome Powell's Congressional testimony, due on Wednesday and Thursday, as well as US inflation data due later this week. A steady stream of weak economic data and external threats to growth such as the US-China trade war had fueled anticipation among investors that the Federal Reserve would lower rates this month.

The US dollar index climbed to as high as 97.443 on Friday, its highest level since June 19, as US Treasury yields rose across the board.

The New Zealand dollar recovered some of its losses, with markets still expecting a rate cut from the US Federal Reserve this month despite strong jobs growth there. The major traded flat at 1.2526, having hit a low of 1.2481 on Friday, it's lowest since January 3. The European currency traded flat at 1.1220, having touched a low of 1.1207 on Friday, its lowest since June 19.

"So far U.S. -Iran tensions have not had a material impact on markets, but if tensions escalate it could be a different story", said NAB's Catril.

Germany's DAX declined 0.1 percent at 12,599.01 points; France's CAC 40 trades 0.1 percent lower at 5,585.90 points.

USA producer prices are due on Friday.

Oil prices are fluctuating with West Texas Intermediate crude down 0.1% at $57.40, and Brent crude up 0.2% at $64.30.

"The re-adjustment in expectations did push the dollar higher and had a negative effect on Asia but Europe has been supported by investors saying "whatever the Fed does, the ECB [European Central Bank] will still cut", said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Spot gold jumped 0.5 percent at $1,406.79 per ounce, at 0721 GMT.

Gold futures finished lower last week, ending a six-week winning streak.

This week, Federal Reserve Chairman Jerome Powell might be delivering his semi-annual Monetary Policy Report to Congress on Wednesday and Thursday, and the Federal Open Market Committee (FOMC) may also launch its June meeting minutes on Wednesday. The U.S. Treasury yields rose on Friday on better-than-expected U.S. payroll numbers in June, helping the Australian 10-yer yield to rise about 4 basis points. The yield on the benchmark 10-year Treasury yield remained 1-1/2 basis points lower at 2.030 percent, the super-long 30-year bond yields traded almost 2 basis points down at 2.530 percent and the yield on the short-term 2-year remained almost 1-1/2 basis points lower at 1.860 percent.

"We continue to see rate cuts as the most likely outcome, " with 60% odds of a July quarter-point cut, 15% odds of a half-point reduction, and 25% odds of no policy change.

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