Asia shares eke out 19-month top, cautious ahead of Yellen

SYDNEY Asian shares inched to 19-month highs on Tuesday as the potential for economic stimulus in the United States underpinned the dollar, bond yields and Wall Street stocks.

Yet caution bled into markets ahead of testimony by the head of the Federal Reserve, which could highlight the likelihood of two or more U.S. interest rate hikes this year.

Japanese shares also ran into trouble after Toshiba Corp (6502.T) delayed an anxiously-awaited earnings release, including details of a multibillion dollar charge related to cost overruns at its U.S. nuclear arm.

The Nikkei .N225 slipped 0.7 percent as Toshiba shed more than 8 percent under the weight of sell orders.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged up 0.2 percent, trying for its fifth straight session of gains.

Helping sentiment was data showing consumer and producer prices were rising in China, thus reducing the danger of deflation across the globe.

Stocks in Shanghai .SSEC were barely changed on the day, as were E-mini futures for the S&P 500 ESc1.

Wall Street indexes had hit historic peaks on Monday, with the benchmark S&P 500’s market value topping $20 trillion as investors bet tax cuts promised by President Donald Trump would boost the economy.

The Dow .DJI rose 0.7 percent, while the S&P 500 .SPX gained 0.52 percent and the Nasdaq .IXIC 0.52 percent. Apple (AAPL.O), a component of all three indexes, rose 0.9 percent to close at a record high for the first time since 2015.

The dollar index .DXY dipped against a basket of currencies to 101.830, but was still near its strongest since Jan. 20, while the euro was a shade firmer after three sessions of losses to stand at $1.0609 EUR=.

The dollar scored a two-week top on the yen following reports that Trump did not discuss the currency or its strength during weekend talks with visiting Japanese Prime Minister Shinzo Abe. The dollar was last at 113.45 yen JPY=.

PARSING FED POLICY

All eyes are now on Fed Chair Janet Yellen’s semi-annual testimony on policy due on Tuesday and Wednesday.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, believes Yellen will outline the case for at least three rate rises this year, rather than the two that market pricing is implying.

One thing investors will be watching is how forceful Yellen is in keeping alive the risk of a hike in March, something the market has priced as a distant chance <0#FF:>.

Dallas Fed President Robert Kaplan on Monday argued it should move soon to avoid falling behind the curve, especially as fiscal policy could drive faster growth and inflation.

“Given the uncertainty of timing on the fiscal agenda and the relatively modest uptick in inflation thus far this year, we think it will be difficult for the committee to get enough members onboard for a hike in March,” said Porcelli at RBC.

“But Yellen could certainly move the ‘perception’ needle on this.”

In commodity markets, metals were on a tear thanks to supply disruptions and strong Chinese demand.

Copper CMCU3 hit its highest since May 2015 after shipments from the world’s two biggest copper mines were disrupted. [MET/l]

Iron ore climbed to its since August 2014 amid reports China plans to cut steel capacity by at least half in 28 cities across five regions during the winter heating season.

Oil recouped some ground on OPEC-led efforts to cut output, though rising production elsewhere kept prices to a narrow range that has contained them so far this year.

U.S. West Texas crude CLc1 added 12 cents to $53.05 a barrel, having shed 1.7 percent overnight. Brent futures LCOc1 rose 15 cents to $55.74 a barrel.

(Editing by Sam Holmes and Kim Coghill)