Asia stocks subdued as Japan-South Korea tensions escalate

Pedestrians look at share prices of the Tokyo Stock Exchange on an electronic stock indicator in Tokyo on October 31, 2018.

Behrouz Mehri | AFP | Getty Images

Asia Pacific markets were subdued Friday morning as investors looked ahead to an important speech from U.S. Federal Reserve Chairman Jerome Powell later in the day.

Japan's Nikkei 225 edged up 0.09% in early trade, while its Topix index added 0.15%. South Korea's Kospi lost 0.25%. 

Tensions between Japan and South Korea escalated on Thursday when Seoul said it was cancelling an intelligence-sharing pact with Tokyo amid a bitter trade dispute.

In Australia, the ASX 200 was almost flat. 

Asia-Pacific Market Indexes Chart

Fed Watch

Meanwhile, Fed's Powell is set to deliver a speech at a yearly central banking symposium in Jackson Hole, Wyoming. Investors will look for clues about what the U.S. central bank would do next. Analysts say markets have fully priced in a possible rate cut in September. Fed cut rates by 25 basis points in July, citing "global developments" and "muted inflation."

"Interest in the Powell speech will be in whether he maintains the line that last months' action represented no more than a "mid-cycle" adjustment or "insurance" cut," Ray Attrill, head of foreign exchange strategy at the National Australia Bank, said in a morning note.

"We presume Powell will want to convey an open-minded view about the outlook for monetary (policy) from here without pre-committing to any set course, but whether he will be suitably dovish enough for the market will be key to the market reaction," Attrill added.

Still, comments from other Fed officials about how certain a September rate cut was has dampened investor confidence.

Currencies and oil

The U.S. dollar last traded at 98.202 against a basket of its peers, withdrawing from levels above 98.300 reached earlier this week.

Elsewhere, the Japanese yen traded at 106.50 versus the greenback, weakening fractionally from an earlier level around 106.36 while the Australian dollar changed hands at $0.6761.

Oil prices eased in the morning amid ongoing worries about the health of the global economy and lingering recession fears.

U.S. crude traded up 0.31% at $55.51 a barrel after declining 0.6% in the previous session. Brent recovered slightly to trade around $60.17. Analysts said weak economic data weighed on crude oil prices.

"Sentiment wasn't helped after some Fed speakers voiced their opposition to further rate hikes," David Plank from ANZ Research said in a morning note. "The market took little comfort from ongoing supply constraints."

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