Asia set to trade higher following overnight gains on Wall Street

Asia markets were set to trade higher on Thursday, likely taking cues from Wall Street, where stocks gained overnight after strong quarterly results lifted investor sentiment.

Nikkei futures in Osaka and Singapore traded higher than the benchmark index's last close at 20,618.57. Japan's preliminary manufacturing PMI data for August is expected this morning.

SPI futures pointed to a muted open in Australia after the ASX 200 finished at 6,483.30 on Wednesday.

"The hot and cold vibes in the equity markets continue with gains in the overnight session effectively reversing the losses recorded the previous day," Rodrigo Catril, senior foreign exchange strategist at the National Australia Bank, said in an early morning note.

Asia-Pacific Market Indexes Chart

Markets had a relatively modest reaction overnight after the Fed released minutes of its last meeting in July, where the U.S. central bank lowered the benchmark rate by 25 basis points.

In its minutes, Fed officials who voted to lower interest rates three weeks ago agreed that the move shouldn't be viewed as an indication that there is a "pre-set course" for future cuts.

The summary indicated that policymakers viewed the move as a "mid-cycle adjustment" — an expression that Fed Chair Jerome Powell had used in a news conference afterward. That was said to have contributed to a stock market sell-off following the July 30-31 meeting as market players grew concerned that the Fed might not be as accommodative with policy as anticipated.

The U.S. dollar last traded at 98.295 against a basket of its peers, climbing from levels near 98.145 earlier in the day. Among currency pairs, the Japanese yen traded at 106.59 against the dollar while the Australian dollar changed hands at $0.6785.

"The main reason why the (dollar) strengthened and US treasury yields lifted was because the minutes did not strengthen the chances of further rate cuts this year. The Fed instead eased back slightly the probability of further cuts," Richard Grace, chief currency strategist and head of international economics at the Commonwealth Bank of Australia, wrote in a morning note. Bond yields move inversely to prices.

Still, fears of recession lingered in the market as the spread between the yield on the 10-year U.S. Treasury note and that of the 2-year note turned negative for the second time in one week. The inverted bond-market spread is seen by many veteran traders as an important recession omen, though the timing on the eventual downturn is less predictable.

— CNBC's Jeff Cox and Thomas Franck contributed to this report.

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