Asian shares shrug off Trump controversy, look to Yellen

TOKYO (REUTERS) - Asian shares steadied on Wednesday (July 12) after Wall Street managed to weather a fresh twist in the political controversy surrounding US President Donald Trump's administration, while investors looked ahead to Federal Reserve chairman Janet Yellen's comments later in the day.

MSCI's broadest index of Asia-Pacific shares outside Japan ticked up 0.1 per cent while Japan's Nikkei slid 0.3 per cent.

"Yellen's testimony is the biggest focus. I don't expect shares to move much in either direction ahead of that," said Daiwa Securities chief global strategist Hirokazu Kabeya.

US stocks took a brief tumble, with the Dow falling 100 points at one point, after e-mails disclosed Mr Trump's eldest son cited Russian support for his father's 2016 election campaign.

By the closing bell, Wall Street shares had clawed back their losses in part as the Senate announced a two-week delay to its August recess to allow more time to tackle a measure that would repeal key parts of Obamacare, as well as pursue other legislative priorities.

Still, it remained unclear whether US Senate Republicans have the votes to pass the measure or even what form it would finally take.

"The e-mails look pretty bad but then again they don't look like decisive evidence (for illegal behaviour) either. I doubt this alone would lead to a risk-off market," said Hiroko Iwaki, senior fixed income strategist at Mizuho Securities.

On the other hand, the US dollar failed to recover after the damage suffered from the new twist in the Mr Trump campaign's alleged links with Russia.

The euro held at US$1.1469, having hit a 14-month high of US$1.1480 on Tuesday.

The dollar also lost steam against the yen, which had been under renewed pressure following Friday's bond-buying by the Bank of Japan which highlighted divergent monetary polices between the two countries.

The US currency fetched 113.84 yen, slipping a half yen from a four-month high of 114.495 yen touched on Tuesday.

The dollar index against a basket of six major currencies was hovering at 95.70, within sight of its nine-month low of 95.47 plumbed at the end of June.

US Treasuries yields stayed below their recent peaks, with the 10-year yield at 2.360 per cent, compared to 2.398 per cent marked on Friday, its loftiest level in almost two months.

Ahead of Fed chairman Yellen's testimony to Congress on the state of the US economy from 1400 GMT (10pm, Singapore time), two of her colleagues cited low wage growth and muted inflation as reasons for caution on further interest rate increases.

Fed governor Lael Brainard embraced the plan to reduce the balance sheet "soon", but suggested her support for any future rate increases will depend in part on how inflation shapes up.

In addition, at a separate event on Tuesday, Minneapolis Federal Reserve Bank president Neel Kashkari said he finds it hard to believe that the US economy is in danger of overheating when wage growth is so low.

As a result, traders trimmed expectations of a rate hike by the end of the year, with dollar interest rate futures pricing in about a 55 per cent chance compared to about 60 percent earlier.

"I would think Brainard was in a way speaking for Yellen. It seems like the Fed is becoming cautious about rate hikes," said Iwaki of Mizuho Securities.

Reaction was largely muted to a story by Politico that Trump is increasingly unlikely to nominate Yellen next year for a second term, and National Economic Council director Gary Cohn is the leading candidate to succeed her.

Oil prices held firm after strong gains on Tuesday on reports showing cuts in US oil production and declines in US crude and European product stockpiles.

US crude futures traded at US$45.81 per barrel, up 1.7 per cent so far on Tuesday, extending their recovery from Monday's near two-week low of US$43.65.