Asian stocks showed mixed performance in early trading on Wednesday as markets braced for a crucial U.S. inflation reading, while the Japanese yen hovered just below the 160 per dollar mark, keeping traders on edge for potential intervention by Japanese authorities.
Investor sentiment remained cautious as hawkish comments from Federal Reserve officials dampened expectations for near-term U.S. rate cuts, giving a boost to the dollar.
The MSCI’s broadest index of Asia-Pacific shares outside Japan was relatively unchanged at 566.55 amidst choppy trading, pulling back slightly from the two-year high of 573.38 reached last week. Despite this, the index is up 3.5% in June, marking its fifth consecutive month of gains.
Japan’s Nikkei and Taiwan stocks saw significant gains, driven by a surge in chipmakers, in line with the rally in the tech-heavy Nasdaq on Tuesday. Nvidia’s impressive 6% rise helped snap a three-session losing streak that had wiped out about $430 billion from its market value.
Conversely, Chinese stocks edged lower with the blue-chip CSI300 Index and the Shanghai Composite Index both down 0.2%, heading for a 4% decline for the month. Hong Kong’s Hang Seng index also dipped by 0.16%.
On the U.S. monetary policy front, Fed officials advocated patience regarding interest rate cuts. Governor Lisa Cook mentioned that the central bank could consider a rate cut if the economy’s performance aligns with her expectations, though she did not specify a timeline. Fed Governor Michelle Bowman reiterated her stance that maintaining the policy rate steady “for some time” would likely be sufficient to control inflation.
These comments, coupled with data indicating a stable housing market, tempered expectations regarding the timing and extent of Fed rate cuts. According to the CME FedWatch tool, markets are pricing in 47 basis points of easing this year, with a 66% probability of a rate cut in September.
“The great disinflation trajectory remains intact, but the last mile journey has been bumpy and tricky to navigate,” said Selena Ling, head of research and strategy at OCBC, in a note.
Traders are keenly awaiting Friday’s release of the U.S. personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation. Economists polled by Reuters anticipate an annual growth rate easing to 2.6% in May.
“Barring new shocks to energy markets and/or supply chains, easing incoming inflation and a labor market rebalancing will provide the window for the data-dependent Fed to cut up to two times this year,” added OCBC’s Ling.
In the currency market, the dollar index, which measures the greenback against six major peers, was steady at 105.64, while the euro stood at $1.0715. The Australian dollar rose following data showing consumer price inflation accelerated to a six-month high in May, narrowing the odds of another rate hike as early as August. The Aussie was last up 0.39% at $0.6674.
The yen was trading at 159.79 per dollar, staying within tight ranges near the crucial 160 level that might prompt another round of intervention. The yen reached a 34-year low of 160.245 per dollar on April 29, leading Tokyo to spend roughly 9.8 trillion yen in late April and early May to support the currency.
The yen’s recent slide follows the Bank of Japan’s (BOJ) June policy meeting, where policymakers disappointed investors by not reducing the central bank’s massive bond purchases. However, the BOJ has hinted that its quantitative tightening plan in July could be more significant than markets expect, potentially accompanied by an interest rate hike.
In commodities, oil prices remained steady in Asian trade, with Brent crude oil futures flat at $85.02 per barrel and U.S. West Texas Intermediate crude futures at $80.90 per barrel. Gold prices eased to $2,318 per ounce but have gained 12% this year, having reached a record high of $2,449.89 last month.
