Shares hold near record high with Powell in focus, dollar in the doldrums

By Alun John and Stella Qiu

LONDON/SYDNEY (Reuters) -World shares steadied on Friday, sitting just 1% shy of all-time highs, while the dollar languished around one-year lows ahead of a speech by the world's most powerful central banker which markets will peruse for guidance on the shape of U.S. rate cuts.

Europe's broad Stoxx 600 index rose 0.14% in early trading, Asian shares outside Japan nudged down 0.1%, but Japan's Nikkei gained 0.4% as investors digested inflation data and remarks from Bank of Japan governor Kazuo Ueda flagging a willingness to raise interest rates if the economy and inflation turn out as forecast.

That left MSCI's all country world index up a whisker, and with early August's turmoil in the rear view mirror, it is now trading around 1% off its mid July all time peak. S&P500 futures rose 0.3%.

The main event of the week is still to come however: Federal Reserve Chair Jerome Powell's keynote speech to the Kansas City Fed's annual Jackson Hole Research conference, which comes as U.S. economic data gives the Federal Reserve the green light to cut interest rates.

Markets are fully priced for a 25 bp rate cut in September and see a cut at each of the Fed's three remaining meetings this year, and for one to be a larger 50 bp move.

The speech will be watched carefully to see whether it challenges or underscores such pricing, though Powell's opportunities to give too much of a surprise seem limited.

"As any decision that deviates from market pricing will rest on as yet unknown data, it is hard to see how Powell can commit to much beyond some easing of some sort in September, and even then, only barring data accidents," said Rob Carnell, regional head of research, Asia-Pacific, at ING.

Expectations that rate cuts are coming have kept U.S. Treasury prices supported and not giving back their safe-haven gains from early August.

The benchmark 10 year Treasury yield was flat at 3.857% - it has only been above 4% for a very brief period in August, after spending almost all of 2024 there.

Its German equivalent was also steady at 2.25%. [GVD/EUR]

The low U.S. yields have hurt the dollar, which has lost ground on almost all major peers in August. [FRX/]

The euro was last at $1.1119, steady on the day and just off a 13 month peak hit earlier this week, and sterling was up 0.2% at $1.312, struggling to push through its July 2023 level, which would take it to its highest in well over two years. [GBP/]

The Japanese yen gained with the dollar down 0.3% at 145.85 after Bank of Japan Kazuo Ueda flagged an willingness to raise interest rates if the economy and inflation turn out as forecast.

"The yen buying today is understandable given Governor Ueda showed very little sign of a shift in the views and plans of the BoJ following the financial market turmoil earlier this month," said Derek Halpenny, head of research global markets EMEA at MUFG in a note to clients.

Data out early in the day showed Japan's core inflation accelerated for a third straight month, but a slowdown in demand-drive price gains suggest no urgency for any immediate rate hikes.

Commodities looked set to end the week lower.

Brent crude futures were up 0.5% at $77.59 a barrel, although they are down more than 3% for the week as swelling U.S. crude stocks and a weakening demand outlook in China have raised pessimism. [O/R]

Gold prices are up 0.5% to $2,496.6 an ounce, recharging towards its record high of $2,531.6 hit just on Tuesday.

(Reporting by Stella Qiu in Sydney and Alun John in London Editing by Shri Navaratnam and Kim Coghill)