Ankur Banerjee
SINGAPORE (Reuters) – Asian shares took a breather and hovered near a two-year high on Thursday as traders awaited further clues on U.S. policy, while sterling steadied ahead of a Bank of England meeting where interest rates are expected to remain unchanged.
Besides the Bank of England, investors will also be focusing on decisions by the Swiss and Norwegian central banks on Thursday, which will set the tone for the global interest rate outlook.
MSCI’s broad index of Asia Pacific stocks ex-Japan was little changed at 572.97, just below a two-year high of 573.38 hit on Wednesday thanks to gains in technology stocks. The index is on track to rise 4% in June.
Japan’s Nikkei fell 0.63%, while Chinese stocks also fell, with the blue-chip index dropping 0.34%. Hong Kong’s Hang Seng Index fell 0.14%.
China kept its benchmark lending rate unchanged at the monthly rate on Thursday, in line with market expectations, despite recent indications that the economy remains fragile.
The domestic yuan fell below 7.26 yuan per dollar for the first time since November.
The pound was steady at $1.2717 ahead of the Bank of England’s policy decision, having fallen 0.2% in June. [FRX/]
Data on Wednesday showed UK inflation returned to the target of 2% in May for the first time in nearly three years, but persistent price pressures make any interest rate cuts almost impossible ahead of next month’s general election.
A Reuters poll last week found most economists expecting the central bank to start cutting rates in August, but markets see only a 30% chance of a cut in August, with the first move more likely to come in September or November.
Markets are pricing in 43 basis points of monetary easing from the Bank of England this year.
Meanwhile, the Swiss National Bank is widely expected to cut its policy rate by 25 basis points for the second time in a row, while the Norwegian central bank is likely to keep rates on hold.
NVIDIA LED Rally
A surge in tech stocks on Tuesday helped AI chipmaker Nvidia overtake Microsoft as the world’s most valuable company, sparking a global rally in tech shares.
U.S. markets were closed on Wednesday, with tech-heavy Nasdaq futures up 0.25% at the open on Thursday.
The frenzy around artificial intelligence has sent tech stocks soaring throughout the year, with Nvidia leading the way along with a handful of other giants as U.S. stocks hit record highs and Asian shares also surged.
“Nvidia remains the most important stock in the world,” Chris Weston, head of research at Pepperstone, said in a note.
But Weston cautions that narrow index market breadth and disappointing participation suggest the rally is built on shaky foundations.
“The fact remains, the market is now fully invested in AI stocks and big tech companies, and given the lack of clear near-term risks, the path of least resistance is for stock indexes to rise.”
At the macro level, after the Federal Reserve last week predicted just one rate cut this year and policymakers sounded cautious this week, investors are looking for new clues about when the central bank might begin an easing cycle.
The dollar index, which compares the U.S. currency against six major currencies, was little changed at 105.23, while the euro was flat at $1.0746.
The Japanese yen is languishing at 158.05 to the dollar as a widening interest rate gap between Japan and the U.S. weighs on the currency. The yen has fallen more than 10 percent against the dollar this year. “I think the best-case scenario is that the Fed’s rate cut in September narrows the dollar-yen yield gap,” said Stephan Hofer, chief investment strategist at LGT Bank Asia.
“We expect the Bank of Japan to gradually tighten monetary policy, but there is probably no room to raise interest rates significantly,” Hofer said.
In commodity markets, crude oil prices were mixed, with Brent crude oil remaining flat at $85.08 per barrel, while US West Texas Intermediate crude oil for June delivery was down 0.18% to $81.42 per barrel. [O/R]
(Reporting by Ankur Banerjee; Additional reporting by Samar Jen in Hong Kong; Editing by Miral Fahmy)
