Asian stocks maintained their ground on Thursday, lingering near their highest levels in two years as traders awaited new policy signals from the U.S. Meanwhile, sterling remained steady ahead of a Bank of England (BoE) meeting where interest rates are expected to stay unchanged.
Investors are also closely monitoring upcoming central bank decisions from Switzerland and Norway, which will help set the tone for the global interest rates outlook.
The MSCI’s broadest index of Asia-Pacific shares outside Japan was nearly flat at 572.97, just shy of the two-year high of 573.38 reached on Wednesday, buoyed by tech stocks. The index is on track for a 4% rise in June.
In Japan, the Nikkei fell by 0.63%, while Chinese stocks also saw declines, with the blue-chip index down 0.34%. Hong Kong’s Hang Seng index edged 0.14% lower. China left its benchmark lending rates unchanged at a monthly fixing on Thursday, aligning with market expectations despite recent economic data suggesting ongoing instability.
The onshore yuan weakened past 7.26 per dollar for the first time since November, highlighting continued pressure on the currency.
Sterling Steady Before BoE Meeting
Sterling remained steady at $1.2717 ahead of the BoE policy decision and is down 0.2% for June. Recent data showed British inflation returning to its 2% target for the first time in nearly three years in May, though strong underlying price pressures suggest that an interest rate cut ahead of the upcoming election next month is unlikely.
Most economists polled by Reuters last week predicted the BoE would start cutting rates in August. However, market sentiment sees only a 30% chance of an August rate cut, with the first move more likely to occur in September or November. Markets have priced in 43 basis points of easing from the BoE this year.
Conversely, the Swiss National Bank is widely expected to cut its key policy rate by 25 basis points for a second consecutive meeting, while Norway’s central bank is likely to keep its key policy interest rate unchanged.
Nvidia Leads Tech Rally
A surge in tech stocks on Tuesday propelled AI chipmaker Nvidia above Microsoft to become the world’s most valuable company, sparking a global rally in tech shares. U.S. markets were closed on Wednesday, but tech-heavy Nasdaq futures rose 0.25% in early trading on Thursday.
The frenzy over artificial intelligence has driven technology stocks to new highs this year, with Nvidia leading the pack alongside other tech giants, boosting Asian counterparts as well.
“Nvidia remains the most important stock in the world,” said Chris Weston, head of research at Pepperstone, in a note. Weston, however, cautioned that market breadth has been poor, with underwhelming participation suggesting that the rally rests on a shaky foundation. “The fact remains the market is now all in on the rally in AI-related names and big tech. Given the lack of clear immediate risks, the path of least resistance is for higher equity index levels.”
Global Macroeconomic Watch
Investors are also seeking new cues on when the Federal Reserve might begin its policy easing cycle after the central bank last week projected just one rate cut for the year. Policymakers have remained cautious this week.
The dollar index, which measures the U.S. currency against six rivals, was little changed at 105.23, while the euro held steady at $1.0746. The Japanese yen weakened to 158.05 per dollar, affected by the significant interest rate differential between Japan and the U.S. The yen has fallen over 10% against the dollar this year. “I think the best-case scenario is a September Fed interest rate cut that narrows the yield differential between the dollar and yen,” said Stefan Hofer, chief investment strategist at LGT Bank Asia.
“We think the Bank of Japan will incrementally tighten monetary policy, but the room to radically hike interest rates is arguably missing,” Hofer added.
In the commodities market, oil prices were mixed, with Brent crude steady at $85.08 per barrel, while U.S. West Texas Intermediate crude for June dropped 0.18% to $81.42 per barrel.