Asian Shares Pause Rally as Yen Struggles Against Crosses; Oil Retreats After Supply-Driven Surge

Asian equities eased on Thursday as investors looked for fresh catalysts, while the yen came under heavy selling pressure, particularly against the euro and Swiss franc.

Oil prices retreated after jumping more than 2% overnight to a seven-week high, lifted by a sharp drawdown in U.S. crude inventories and ongoing export disruptions in Iraq, Venezuela, and Russia.

Eurostoxx 50 futures slipped 0.1%, pointing to a subdued start for European markets. S&P 500 and Nasdaq futures were steady ahead of remarks from Federal Reserve officials, with investors closely watching their views on interest rates.

San Francisco Fed President Mary Daly said further rate cuts could be necessary but the timing remained uncertain. Earlier this week, Fed Chair Jerome Powell struck a cautious note on future easing, after the central bank cut rates for the first time this year.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dipped 0.1%, though it remains up more than 5% for the month and 9% for the quarter. Japan’s Nikkei (.N225) added 0.2% after strong monthly and quarterly gains of 7% and 13%, respectively.

“There was a notable lack of new catalysts across markets, with little in the way of impactful news or data to shift sentiment meaningfully,” said Michael Brown, senior research strategist at Pepperstone. He added that the Fed’s “run it hot” stance tilted risks to the upside, reviving the “Fed put” dynamic familiar to investors.

Chinese stocks outperformed, with blue chips (.CSI300) up 0.7% and Hong Kong’s Hang Seng (.HSI) 0.2% higher. Chinese tech shares (.HSTECH) extended gains for an eighth straight week, the longest winning streak on record, fueled by AI optimism.

Overnight on Wall Street, stocks slipped for a second session as investors locked in profits from record highs. Futures markets still see a 92% chance of a Fed rate cut in October, though the scale of expected easing has narrowed to 100 basis points from 125 a few weeks ago.

Attention now turns to upcoming U.S. economic data, including the Fed’s preferred inflation gauge—the PCE report on Friday—and Thursday’s final Q2 GDP estimate, with the threat of a government shutdown looming.

In Treasuries, yields steadied after the market absorbed heavy corporate and government bond supply. The benchmark 10-year yield held at 4.1408%, reversing part of Monday’s drop. The Treasury will auction $44 billion in seven-year notes later on Thursday, following earlier sales of two- and five-year maturities.

The dollar index held firm at 97.82 after a 0.6% overnight jump, unsettling yen bulls who had built long positions following the Bank of Japan’s hawkish shift last week. “Many macro and discretionary investors were caught on the wrong side expecting dollar/yen to trade lower,” said Tony Sycamore, analyst at IG.

The yen’s weakness spilled over into crosses, with the Swiss franc hitting record highs and the euro rising to a one-year peak of 174.66 yen, just shy of its all-time high of 175.90. The Swiss National Bank is expected to keep rates unchanged at zero later today, pausing for the first time since late 2023.

In commodities, spot gold steadied at $3,739 an ounce after a 0.7% overnight drop on dollar strength. U.S. crude eased 0.4% to $64.73 per barrel, while Brent slipped 0.3% to $69.11.