Asian Markets Retreat Amid Fed's Hawkish Stance

Asian stock markets eased from two-and-a-half-year highs, impacted by hawkish comments from Federal Reserve Chair Jerome Powell. Investors await U.S. labor data for clarity on rate cuts as oil prices remain steady and gold trades near record highs. Japanese stocks rose amid yen weakness.

Asian stock markets retreated from recent highs on Tuesday, following tough comments from Federal Reserve Chair Jerome Powell that dampened hopes for significant interest rate cuts. Mid-East tensions also kept market sentiment cautious.

Oil prices remained stable and gold traded just below last week's record highs as investors awaited U.S. labor data for a clearer picture on the pace of rate cuts. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.13% to 620.05, down from Monday's high of 627.66. The index is still up 17% for the year.

Japan's Nikkei climbed 1.5% in early trading, recovering from a 4.8% drop on Monday after Shigeru Ishiba, perceived as a monetary policy hawk, won the contest to be prime minister. The softer yen, trading at 144.09 per dollar, buoyed Japanese shares.

With mainland China's markets closed for the rest of the week, the recent rally in Asian markets is expected to pause. The Hong Kong market also remained closed on Tuesday. Chinese stocks have surged, driven by economic stimulus measures, with the CSI300 up 25% since last week.

Attention has shifted to the Fed's pace of rate cuts. After a recent 50 basis-point cut, Powell indicated Monday that future cuts would likely be more gradual. Traders now expect a 38% chance of a 50 bp cut next month, down from 53% last Friday. The dollar index rose slightly to 100.77, with the euro stable at $1.11355.

Oil prices steadied amid concerns that Middle East tensions could affect exports, with Brent crude futures at $71.78 per barrel and U.S. West Texas Intermediate crude at $68.22 per barrel. Spot gold rose 0.11% to $2,637.56 per ounce, near last week's high of $2,685.42.

(With inputs from agencies.)