(Aug 25): Asian stocks were set to follow a selloff on Wall Street, with bond yields rising as traders comb through remarks from a slew of Federal Reserve officials and await Jerome Powell’s speech for clues on the interest-rate outlook.

Equity futures for Japan, Hong Kong and Australia pointed to declines after the S&P 500 almost wiped out its weekly advance, while losses in the Nasdaq 100 topped 2%. Treasury two-year yields, which are more sensitive to imminent policy moves, climbed above 5%. The greenback advanced against all of its G-10 peers on Thursday (Aug 24), with the Australian and New Zealand dollars falling the most in more than three weeks. 

Traders are keeping a close eye on the annual gathering of top central bankers in Jackson Hole, Wyoming — where Powell is scheduled to deliver a speech at 10.05am Washington time Friday. The Fed chief will likely use his platform to outline how officials will assess whether rates should go higher and determine when it’s time to start cutting them.

In the run-up to Powell’s address, Fed Bank of Boston President Susan Collins told Yahoo! Finance that rate increases may be necessary, adding that she wasn’t prepared to signal the peak point. Meantime, her Philadelphia counterpart Patrick Harker sees interest rates on hold for the rest of this year, and thinks policymakers have likely undertaken sufficient tightening, telling CNBC that “we’ve probably done enough”.

Speaking earlier in an interview on Bloomberg Television, former St Louis Fed president James Bullard said a pickup in economic activity this summer could delay plans for the Fed to wrap up interest-rate increases.

A survey conducted by 22V Research shows that 78% of investors expect Powell to focus on data dependency. The next most-popular choice was financial conditions, which received 12% of votes. Only 21% of investors expect the market reaction to be “risk-off”, while 43% bet it will be mixed or negligible and 37% predict a “risk-on” response.

“If Powell focuses on data dependency, that ought to help 10-year yields stabilise,” said Dennis DeBusschere, founder of the New York-based research firm. That would also provide a “tailwind” to the growth-versus-value trade, he noted.

Another topic that has surfaced on Wall Street over the past few days is whether Powell will address the abstract, almost elusive number that many refer to as r-star. That’s a sort of “goldilocks” rate that neither stimulates nor restricts economic growth.

Former Treasury secretary Larry Summers and Bill Dudley, previously the New York Fed chief, are among those who have said markets are still underestimating the so-called neutral interest-rate. Any hint at an upward revision would likely ripple across global markets, forcing a reevaluation on where the fair value for Treasury yields is likely to land.

Yet Krishna Guha at Evercore ISI said Powell will likely focus on the short-to-medium-term outlook — and avoid making a call on the r-star.

“Expect a balanced assessment with no abrupt hawkishness, but no ‘Mission Accomplished’,” Guha added. “The Fed has not come this far to let inflation slip out of its grasp.”