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Asia slips after U.S.-China trade talks end without progress, Powell eyed

TOKYO (Reuters) – Asian stocks fell on Friday after U.S.-China trade talks ended without progress, with the markets braced for a speech by Federal Reserve Chairman Jerome Powell for hints on the direction of U.S. monetary policy.

FILE PHOTO: A pedestrian holding an umbrella walks past an electronic board showing the graphs of the recent fluctuations of Japan’s Nikkei average outside a brokerage in Tokyo, Japan, January 18, 2016. REUTERS/Yuya Shino/File Photo

U.S. and Chinese officials ended two days of talks on Thursday with no major breakthrough. Meanwhile their trade war escalated with activation of another round of dueling tariffs on $16 billion worth of each country’s goods.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.6 percent. It was still up about 0.85 percent on the week.

Hong Kong’s Hang Seng .HSI fell 0.8 percent and the Shanghai Composite Index .SSEC dropped 0.65 percent.

Australian stocks rose 0.2 percent, South Korea’s KOSPI .KS11 fell 0.35 percent and Japan’s Nikkei .N225 climbed 0.3 percent.

“Global risk sentiment remains somewhat jittery ahead of Fed Chair Powell’s speech with U.S.-Sino trade talks failing to yield any immediate progress,” strategists at OCBC Bank wrote.

The S&P 500 .SPX shed 0.17 percent overnight to pull back slightly from a record high scaled midweek, with industrial shares sagging after the United States and China imposed a fresh round of trade tariffs on each other.

Shares of industrial giants Caterpillar Inc (CAT.N) and Boeing Co (BA.N), which have been bellwethers of trade sentiment, were among the biggest drags on the Dow .DJI, which lost about 0.3 percent. Caterpillar shares fell 2.0 percent, and Boeing shares fell 0.7 percent.

In immediate focus was the speech by the Fed’s Powell to be given later on Friday at the Jackson Hole, Wyoming, meeting of central bankers.

Where Powell stands on the pace of interest rate hikes will be scrutinized after minutes from the Fed’s most recent policy meeting indicated the central bank would tighten monetary policy soon.

“For equities, the key point will be whether Powell indicates that the Fed is poised to hike rates two more times this year. That would fall in line with expectations and not cause much of a stir,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

“Any mention of recent turbulence in the emerging markets may also provide the risk asset markets with some relief.”

U.S. President Donald Trump reiterated his displeasure with the Fed’s rate hikes earlier this week and investors waited to see whether Powell would respond to such criticism.

The Fed should raise rates further this year and probably next year as well, despite Trump’s opposition to tighter policy, Kansas City Fed President Esther George said in interviews aired on Thursday.

Dallas Fed President Robert Kaplan also said Trump’s comments would not affect the central bank’s decision making.

The dollar index against a basket of six major currencies stood at 95.618 .DXY, holding most of its gains after rising 0.55 percent overnight to snap a six-day losing run.

The greenback extended its overnight surge to touch a two-week high of 111.48 yen JPY=. The euro was a shade higher at$1.1548 EUR= after retreating 0.5 percent the previous day.

The Australian dollar dipped 0.05 percent to $0.7245 AUD=D4. It had slumped 1.4 percent overnight as political uncertainty mounted in Australia after several senior ministersresigned and put Prime Minister Malcolm Turnbull’s leadership back in play.

Onshore Chinese yuan CNY=CFXS slipped 0.1 percent to 6.8833 per dollar, its weakest in a week.

Oil prices edged higher. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming U.S. sanctions against Iran. [O/R]

Brent crude futures rose 0.27 percent to $74.93 per barrel LCOc1, while U.S. crude CLc1 added 0.31 percent to $68.04.

Reporting by Shinichi Saoshiro; Editing by Eric Meijer

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