Jerome Powell

Asian markets advanced Tuesday with Tokyo climbing to a record high ahead of Fed chief Jerome Powell's testimony to Congress which will be parsed for hints on the timing of rate cuts, with investors betting on a first trim in September.

The US central bank has held interest rates at the highest levels in more than two decades to bring inflation down to its long-term two percent target without doing too much damage to either the labour market or the broader economy.

After years of focusing primarily on inflation, Federal Reserve officials have now turned their attention increasingly to the labour market, which has shown some signs of weakness in recent months despite remaining strong overall.

Traders will be keenly watching Powell's remarks to Congress on Tuesday and Wednesday for any indications of when the Fed will start cutting rates.

The Fed chair last week fanned hopes of a cut, saying the battle against inflation had made "progress" and the job market was cooling.

"We expect Powell to reiterate the need to see more evidence of slowing inflation before cutting interest rates. But with the recent signs of softer growth and labour market, markets will closely watch if Powell gives any hints on the timing of rate cuts," said Carol Kong at Commonwealth Bank of Australia.

"The Fed Funds futures market has currently attached almost an 80 percent chance of the first rate cut in September," she said.

Investors are also looking to US consumer inflation data due Thursday for further indications that price increases are still easing as hoped, which would give the Fed greater confidence to start cutting rates.

"Powell is expected to hint at possible rate cuts starting in September if inflation continues to decline. A softer core CPI print would likely support this outlook, keeping the US dollar on a weaker trajectory," said Luca Santos, market analyst at ACY Securities.

Wall Street's main indices mostly advanced on Monday, with the S&P 500 and Nasdaq both reaching new records.

The optimistic mood continued into Asia, with Tokyo climbing two percent to close at a record high.

Shanghai reversed early losses to end 1.3 percent higher ahead of a key policy meeting next week and after Moody's Ratings revised up its 2024 GDP forecast for China to 4.5 percent from 4.0 percent previously.

Moody's said it expected "steady GDP growth across most emerging market countries this year and next" and revised its 2024 Asia Pacific forecast to 4.8 percent growth from 4.5 percent previously.

"The region-wide revision reflects an upward adjustment for China as its post-pandemic manufacturing and export-focused growth strategy takes shape, although with lacklustre household consumption," the ratings agency said.

Taipei, Seoul, Singapore, Kuala Lumpur, Jakarta, Manila and Mumbai were also in the green with Bangkok the sole decliner across the region while Hong Kong ended flat.

European markets were mixed in early trade with Paris and Frankfurt down while London recovered after opening lower as investors eye the new political landscapes in France and Britain, and await Powell's testimony.

"With the prospect of a soft landing and rate cuts on the horizon, investors seem perfectly content with high valuations, causing a ripple effect where one mega-cap rise lifts all mega-cap boats," said SPI Asset Management's Stephen Innes.

US Treasury bond yields, which are closely watched as a proxy for interest rates, were little changed.

On forex markets the euro was little changed against the dollar Tuesday following the inconclusive outcome of France's snap elections, with the single currency trading at $1.0819.

"Following the recent French elections, political uncertainty remains high, yet the euro has shown remarkable stability during the Asian trading session," said Santos, with its narrow trading range "reflecting a muted market response".

Tokyo - Nikkei 225: UP 2.0 percent at 41,580.17 points (close)

Hong Kong - Hang Seng Index: FLAT at 17,523.23 (close)

Shanghai - Composite: UP 1.3 percent at 2,959.37 (close)

London - FTSE 100: UP 0.3 percent at 8,215.81

Euro/dollar: DOWN at $1.0819 from $1.0827 at 2030 GMT on Monday

Euro/pound: FLAT at 84.50 pence from 84.50 pence

Dollar/yen: UP at 160.92 yen from 160.80 yen

Pound/dollar: DOWN at $1.2804 from $1.2810

West Texas Intermediate: DOWN 0.5 percent at $81.89 per barrel

Brent North Sea Crude: DOWN 0.4 percent at $85.37 per barrel

New York - Dow: DOWN 0.1 percent at 39,344.79 points (close)