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SYDNEY: Asian stocks were subdued on Wednesday as a lack of new stimulus steps from Beijing frustrated investors, who were also wondering just how hawkish the world’s most powerful central banker would chose to be later in the session.

Federal Reserve Chair Jerome Powell faces lawmakers in two days of testimony and is sure to be questioned on whether rates will really rise again in July and peak in a 5.5%-5.75% range as projected.

Markets have their doubts and currently imply around a 78% chance of a hike to 5.25-5.5% next month, with that likely being the end of the entire tightening cycle.

“The focus is on whether the July meeting is truly “live” and if the Fed dot plot of two more hikes is a true base case depending on the data, or doom-mongering on inflation in an effort to ensure no premature easing in financial conditions,” said Tapas Strickland, head of market economics at NAB.

The uncertainty kept S&P 500 futures and Nasdaq futures flat after a slight dip overnight.

EUROSTOXX 50 futures edged up 0.2% and FTSE futures 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.8%, with South Korea off 0.5%. Japan’s Nikkei inched up 0.1% as the market consolidates three months of hefty gains.

A survey showed morale at big Japanese manufacturers edged up in June to stay in positive territory for a second straight month.

Asian stocks pause rally, eyeing China stimulus, Powell testimony

Chinese blue chips eased 0.5% with investors still disappointed by the extent of Tuesday’s rate cuts, which also saw the yuan hit its lowest for the year.

Elsewhere in currencies, the battered Japanese yen won some respite as risk aversion prompted profit-taking on very crowded short positions. The currency has been falling for weeks as the Bank of Japan (BOJ) doggedly defended its super easy policies.

Minutes of the central bank’s last meeting showed just one of nine board members suggested reconsidering its policy of keeping bond yields low, and even then suggested it was best to wait a while.

That lack of urgency should limit any bounce in the yen and kept the dollar underpinned at 141.56 yen, only just off Tuesday’s seven-month high of 142.26.

The euro, likewise, steadied at 154.54 yen, after dipping from a peak of 155.37.

The single currency was flat on the dollar at $1.0965, as was sterling at $1.2760.

The pound faces a major test from data on UK consumer prices later in the day, where any upside surprise would add to pressure for the Bank of England (BoE) to hike by an outsized 50 basis points at its policy meeting on Thursday.

Median forecasts are for headline inflation to ease to 8.4%, but core to hold at 6.8%.

“We look for the BoE to hike 25bps on Thursday, but given that recent data have surprised to the upside, we see a good case for a 50bp hike,” wrote analysts at JPMorgan in a note.

“We will be closely watching the CPI report for a signal on the BoE’s path to a terminal rate.” Futures currently imply around a 25% chance of a half-point hike.

Rising interest rates and higher bond yields have been a burden for gold which was pinned at $1,936 an ounce, just above last week’s three-month low of $1,924.99.

Oil prices edged higher after a couple of sessions of losses, still struggling with concerns about Chinese demand absent a sizable stimulus package.

Brent added 17 cents to $76.07 a barrel, while US crude rose 20 cents to $71.39.

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