Asian stocks remained steady on Thursday, as traders awaited further indications of U.S. policy. Meanwhile, the British pound was stable ahead of a Bank of England meeting, where interest rates are anticipated to remain unchanged.
In addition to the BoE meeting, investors are also keeping an eye on central bank decisions from Switzerland and Norway, as they could potentially impact the global interest rate outlook.
MSCI’s index of Asia-Pacific shares, excluding Japan, saw minimal movement at 572.97, just below the two-year high of 573.38 reached on Wednesday, fueled by the performance of tech stocks. The index is set to record a 4% increase in June.
Japan’s Nikkei declined by 0.63%, while Chinese stocks also experienced a dip, with the blue-chip index down by 0.34%. Hong Kong’s Hang Seng index saw a slight decrease of 0.14%.
Despite recent evidence of an uncertain economy, China decided to keep its benchmark lending rates unchanged during the monthly fixing on Thursday, in line with market expectations.
The onshore yuan has depreciated beyond 7.26 per dollar for the first time since November.
The pound remains stable at $1.2717 ahead of the Bank of England’s policy decision, but has seen a 0.2% decline in June.
Recent data has indicated that British inflation has reached its 2% target for the first time in nearly three years in May. However, strong underlying price pressures make an interest rate cut unlikely before the upcoming election.
According to a Reuters poll, most economists believed that the central bank would begin cutting rates in August. However, market expectations suggest only a 30% chance of a rate cut in August, with the first move more likely to occur in September or November.
Market projections indicate that the Bank of England will implement 43 basis points of easing this year.
In contrast, the Swiss National Bank is widely anticipated to lower its key policy rate by 25 basis points for a second consecutive meeting. The central bank of Norway, on the other hand, is expected to maintain its key policy interest rate.
Additionally, NVIDIA has experienced a significant rally.
On Tuesday, the surge in tech stocks propelled AI chipmaker Nvidia to surpass Microsoft as the world’s most valuable company, sparking a global rally in tech shares. Although U.S. markets were closed on Wednesday, Nasdaq futures, which heavily rely on tech stocks, showed a 0.25% increase in early Thursday trading.
The ongoing frenzy around artificial intelligence has propelled technology stocks throughout the year, with Nvidia leading the charge alongside a select few industry giants. As U.S. stocks continue to reach record highs, this trend has also positively impacted Asian markets.
Chris Weston, the head of research at Pepperstone, emphasized Nvidia’s significance, stating that it remains the most crucial stock in the world. However, Weston also noted that the market breadth index has been weak, and participation has been underwhelming, indicating that the rally may be built on an unstable foundation.
Despite this cautionary note, Weston believes that the market is fully invested in the AI-related rally and big tech, and with no immediate clear risks in sight, the path of least resistance is for higher levels in equity indices.
Investors are eagerly awaiting signals from the Federal Reserve regarding when it will begin implementing its policy easing measures. Last week, the central bank projected only one rate cut for the year, and policymakers have continued to exercise caution this week.
The dollar index, which measures the strength of the US dollar against six other major currencies, remained relatively stable at 105.23. Similarly, the euro maintained its position at $1.0746.
The Japanese yen, however, has struggled, currently valued at 158.05 per dollar. The significant difference in interest rates between Japan and the United States has put pressure on the yen. So far this year, the yen has depreciated by over 10% against the dollar. Stefan Hofer, the chief investment strategist at LGT Bank Asia, believes that the most favorable outcome would be a September interest rate cut by the Fed, which would narrow the yield differential between the dollar and the yen.
Hofer also noted that while the Bank of Japan may gradually tighten its monetary policy, the scope for significant interest rate hikes is limited.
Oil prices in the commodities market had a mixed performance, as Brent remained stable at $85.08 per barrel, while U.S. West Texas Intermediate crude for June experienced a slight decrease of 0.18% to $81.42 per barrel. (Reporting by Ankur Banerjee, with additional reporting by Summer Zhen in Hong Kong; editing by Miral Fahmy)