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Nikkei hits record high; investors await Fed chair's testimony

Powell is set to appear before Congress as investors wagered a slew of soft labour market data has greatly increased the chance of a rate cut in Sept to about 80%

Japan's Nikkei hit a record high on Tuesday, while investors elsewhere waited anxiously to see if Federal Reserve Chair Jerome Powell would sound supportive of rate cuts after evidence the U.S. labour market is cooling.

Europe is set for a mixed open, with EUROSTOXX 50 futures off 0.2% and FTSE up 0.1%. S&P 500 futures gained 0.2% and Nasdaq futures firmed 0.3%, after Wall Street equities inched higher to close at record peaks on Monday.

The Nikkei index jumped 2.3% to a record high, supported by semiconductor shares, while MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.4% higher, just a touch below a two-year top a day earlier.

Taiwanese shares also hit a record high before running into profit-taking and were last down 0.1%. China's blue-chip index rose 1.1% and Hong Kong's Hang Seng index inched 0.5% higher.

Powell is set to appear before Congress on Tuesday and Wednesday, as investors wagered a slew of soft labour market data has greatly increased the chance of a rate cut in September to about 80%.

"I think markets got a degree of optimism that Powell will be cautiously dovish and that the CPI later this week will confirm that disinflation is back on track," said Shane Oliver, chief economist at AMP in Sydney.

"Which I think seems reasonable to me. When you look at the U.S. economy, most of the data is softening. Jobs figures on Friday were on the soft side, unemployment trending higher. Most labour market leading indicators are cooling down."

The main economic event this week will be the U.S. consumer price report on Thursday, where headline inflation for June is expected to slow to 3.1%, from 3.3% in May, with core inflation forecast steady at 3.4%.

For the remainder of 2024, markets have fully priced in a total 50 basis points of easing, equivalent to two rate cuts.

In foreign exchange markets, the euro held its ground at $1.0825 after Monday's sharp swings as investors come to terms with a hung parliament in France, which points to potential political gridlock but removes many fiscal concerns stemming from far-right or leftist victories.

The U.S. dollar steadied near four-week lows at 105.01 against a basket of currencies, offering some respite to the battered yen and yuan.

The Japanese yen held at 160.95 per dollar, having plumbed a 38-year low of 161.96 per dollar last week, while the offshore Chinese yuan hovered at 7.2897 per dollar, after gaining for four straight sessions to move away from 7-1/2 month lows.

Treasuries were steady. The 10-year government bond yield held at 4.2841%, having slipped for four straight sessions, while 2-years were flat at 4.6285%, nearing a three-month low.

In commodity markets, gold rose 0.3% to $2,365.69 an ounce , having fallen 1.4% overnight.

Oil prices fell after a hurricane that hit a key U.S. oil producing hub in Texas caused less damage than expected.

Brent futures fell 0.2% to $85.54 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped 0.3% to $82.10.