U.S. Treasury Yields Edge Up Amid as Mideast Tensions Rise Pre-Fed — Market Talk

0523 GMT - U.S. Treasury yields edge higher as oil rises after Iran launched a ballistic-missile attack on American forces in the Middle East in a sudden escalation after several days without strikes from either side. Meanwhile, markets expect the Federal Reserve to stay on hold, amid risks of a hike, which is priced in with a 31.5% probability by markets, according to LSEG data. "Our base case remains that the Fed stays on hold in July and through the end of 2026," Principal Asset Management's Seema Shah says in a note. Recent inflation data and contained inflation expectations give policymakers scope to wait for greater clarity before acting, the chief global strategist says. The 10-year Treasury yield is up 0.6 basis points at 4.609%, according to Tradeweb. ([email protected])0511 GMT - The Federal Reserve's current signals are somewhat ambiguous, Mediolanum International Funds' Daniel Loughney says in a note. The market has interpreted Chairman Kevin Warsh's comments as hawkish at his first FOMC meeting and moved from pricing in rate cuts to rate hikes, the head of fixed income says. Currently, the market prices a 31.5% probability of a hike later Wednesday and expects the Fed to raise rates by slightly more than 50 bps over the next 12 months, according to LSEG data. "We believe that the market's interpretation of Fed intentions is wrong and rate increases are not merited," he says. Mediolanum viewed Warsh as neither hawkish nor dovish at the last meeting, Loughney adds. ([email protected])0432 GMT - Bitcoin edges lower in Asian trading. The cryptocurrency continues to trade in the $58,000-$66,000 range as markets await progress on the potential passage of the U.S. Clarity Act, which would create a regulatory framework for digital assets, says Pratik Kala, crypto portfolio manager at Apollo. Despite support for the passage of the bill, industry participants are placing a 30% probability that it will pass last minute, Kala says. Bitcoin's performance has been relatively stable compared to AI-related stocks, which are nearing correction territory, Kala adds. Bitcoin is last down 0.1% at $63,808.53. ([email protected])0308 GMT - While Australia's 2Q inflation data were a little lower than feared, they still won't provide a lot of comfort to the Reserve Bank of Australia, says David Bassanese, chief economist at Betashares. Quarterly gains in the demand-sensitive areas of market services and housing remained uncomfortably higher over the quarter, he adds. Given a still somewhat tight job market, continuing energy-cost risks and upward pressure on housing rents and new house prices, the risk of continued above-target inflation remains high, he says. ([email protected]; X @JamesGlynnWSJ)0255 GMT - The Singapore dollar consolidates against its U.S. counterpart ahead of the FOMC's rate decision due out today. The U.S. dollar-Singapore dollar pair could stay range-bound into the decision, two strategists at OCBC Group Research say in a report. "A Fed hold could see a knee-jerk move lower in the pair, but follow-through may be limited if Fed Chair Warsh keeps the door open to a September hike," the strategists say. Based on daily chart, the currency pair's bearish momentum shows signs of fading while the relative strength index has risen, the strategists say, adding two-way risks are likely for now. The U.S. dollar is flat at 1.2919 Singapore dollars, LSEG data show. ([email protected])0252 GMT - Australia's 2Q CPI data does not contain a red flag for an August interest rate rise, but trimmed mean is still above the top of the 2% to 3% target band, says Alex Joiner, chief economist at IFM Investors. The data is better characterised as grounds for the board to pause and watch how inflation evolves over coming quarters, rather than evidence that any disinflationary trend has resumed, he adds. Importantly, this doesn't lock in the next move as a cut. The RBA's tightening bias remains credible, Joiner says. ([email protected]; Twitter @JamesGlynnWSJ)0221 GMT - Australia's softer-than-expected inflation data are poised to keep the central bank in a wait-and-see mode on monetary-policy tightening, Capital Economics' Abhijit Surya says in commentary. "With underlying inflation surprising to the downside in Q2, the RBA is unlikely to feel an urgency to hike rates in the near term," the senior APAC economist says. Data released earlier showed 0.6% on-quarter rise in Australia's consumer prices in 2Q, weaker than the 0.7% increase that Capital Economics had expected. CE adds the latest print will likely prompt the RBA to leave rates on hold at its upcoming meeting in August. ([email protected])0140 GMT - The dollar is likely to be supported if the FOMC delivers a "hawkish" hold at its rate decision due out today, MUFG Bank's Lloyd Chan says in a research report. "Our base case is for a hawkish hold, with the Fed likely to keep rates unchanged and emphasize that inflation risks remain high," the senior currency analyst says. "This could keep U.S. yields and the dollar supported, in turn weighing on Asia FX broadly," Chan says. "The balance of risks remains tilted toward USD resilience should the Fed continue to emphasize its high-for-longer policy stance," Chan adds. The U.S. Dollar Index is flat at 101.375, LSEG data show. ([email protected])0021 GMT - Japanese stocks are higher in early trade, recovering modestly from Tuesday's sell-offs in technology stocks. Chip and auto shares are leading the gains. Kioxia Holdings is up 7.6%, and Toyota Motor is 2.3% higher. The dollar is at 163.88 yen, compared with Y163.70 as of Tuesday's Tokyo stock market close. Investors are also closely watching any disruption to business operations following a major earthquake in the southern Japanese prefecture of Kumamoto. Developments in the Middle East also remain in focus. The Nikkei Stock Average is up 0.9% at 62919.45. ([email protected]; @kosakunarioka)0017 GMT - Asian currencies consolidate against the dollar in early trade ahead of the FOMC decision due later today. "We expect the FOMC to keep the [Fed] Funds rate unchanged, though one or two may dissent in favour of a hike," CBA's Carol Kong says in a research report. "There is a small chance the majority vote to increase the [Fed] Funds rate," the economist and currency strategist says. "Hawkish commentary from the Fed is likely after the policy meeting," Kong says, adding this could push the greenback higher. The U.S. dollar is little changed at 163.86 yen and is flat at 1.2922 Singapore dollars, LSEG data show. ([email protected])0010 GMT - JGB futures edge higher in early Tokyo trade amid mixed signals. On the one hand, the JGB market could be supported by overnight price gains in U.S. Treasurys, given both JGBs and Treasurys tend to move in tandem. On the other hand, JGB prices may be weighed by latest climb in crude oil prices that usually leads to higher inflation in Japan and might spur the BOJ to raise rates at a faster pace. Investors may also adopt wait-and-see stance ahead of the BOJ's two-day meeting starting Thursday. Benchmark 10-year is 0.03 yen higher at Y127.26. ([email protected])2359 GMT - Australia's 2Q CPI outcome at 0130 GMT will shape the Reserve Bank of Australia's August interest rate decision. Stephen Miller, an investment strategy advisor at GSFM, is focused on the annual core reading, saying that an annual rate of 3.8% will make a further hike a 50/50 call, while a result above 3.8% will virtually guarantee a rate increase next month. It will also keep Australia near the top of developed-economy inflation table, something that will ensure the RBA remains uneasy through the second half of the year, he adds. ([email protected]; X @JamesGlynnWSJ)