Asia stocks mixed as Japan-South Korea tensions escalate; yuan dips to fresh low

Pedestrians look at share prices of the Tokyo Stock Exchange on an electronic stock indicator in Tokyo on October 31, 2018.

Behrouz Mehri | AFP | Getty Images

Asia Pacific markets were mixed Friday morning as investors looked ahead to an important speech from U.S. Federal Reserve Chairman Jerome Powell later in the day.

In mainland China, the Shanghai composite rose 0.21% in early trade, while the Shenzhen component edged up 0.13%. The Shenzhen composite lost 0.21%.

Over in Hong Kong, the Hang Seng index was in positive territory, adding 0.14%. 

Japan's Nikkei 225 rose 0.32%, while its Topix index added 0.30%. South Korea's Kospi lost 0.15%. 

Tensions between Japan and South Korea escalated on Thursday when Seoul said it was cancelling an intelligence-sharing pact with Tokyo amid a bitter trade dispute. The arrangement was designed to share information on the threat posed by North Korea and its missile and nuclear activities.

South Korean defense stocks soared in response. Victek jumped 8.49% in early trade before paring gains to rise 2.38%, while Firstec rose 1%. 

The Korean won, however, continued weakening to 1213.70 against the dollar, from around the 1202 level in the middle of the week. 

In Australia, the ASX 200 went up 0.33%.

MSCI's broadest index of Asia-Pacific shares outside Japan was almost flat.

Asia-Pacific Market Indexes Chart

Fed Watch

Meanwhile, Fed's Powell is set to deliver a speech at a yearly central banking symposium in Jackson Hole, Wyoming. Investors will look for clues about what the U.S. central bank would do next. Analysts say markets have fully priced in a possible rate cut in September. Fed cut rates by 25 basis points in July, citing "global developments" and "muted inflation."

"Interest in the Powell speech will be in whether he maintains the line that last months' action represented no more than a "mid-cycle" adjustment or "insurance" cut," Ray Attrill, head of foreign exchange strategy at the National Australia Bank, said in a morning note.

"We presume Powell will want to convey an open-minded view about the outlook for monetary (policy) from here without pre-committing to any set course, but whether he will be suitably dovish enough for the market will be key to the market reaction," Attrill added.

Still, comments from other Fed officials about how certain a September rate cut was has dampened investor confidence.

Currencies and oil

The U.S. dollar last traded at 98.276 against a basket of its peers, withdrawing from levels above 98.300 reached earlier this week.

Elsewhere, the Japanese yen traded at 106.55 versus the greenback, weakening fractionally from an earlier level around 106.36 while the Australian dollar changed hands at $0.6755.

The onshore yuan dipped to a fresh low since 2008, trading at 7.0909 in the morning. 

Oil prices eased in the morning amid ongoing worries about the health of the global economy and lingering recession fears.

U.S. crude traded up 0.16% at $55.45 a barrel, while Brent rose 0.25% to trade around $60.07 per barrel. Analysts said weak economic data weighed on crude oil prices.

"Sentiment wasn't helped after some Fed speakers voiced their opposition to further rate hikes," David Plank from ANZ Research said in a morning note. "The market took little comfort from ongoing supply constraints."

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