Asian shares steady, sterling cautious ahead of BoE meeting

By Ankur Banerjee

SINGAPORE (Reuters) – Asian shares took a breather on Thursday, hovering near their highest levels in two years, as traders waited for more U.S. policy guidance, while the pound was steady ahead of a Bank of England meeting where rates are expected to remain unchanged to stay.

In addition to the BoE, investors will also be watching for decisions from central banks in Switzerland and Norway on Thursday, which will set the tone for the global interest rate outlook.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed at 572.42, just below the two-year high of 573.38 it hit on Wednesday, boosted by technology shares. The index is on track for a 4% increase in June.

European stock markets opened higher, with Eurostoxx 50 futures and FTSE futures up 0.2% ahead of the series of central bank decisions.

The pound was steady at $1.27125 in cautious trading, but fell 0.2% in June. (FRX/)

Data on Wednesday showed UK inflation returned to its 2% target in May for the first time in almost three years, but strong underlying price pressures all but rule out a rate cut ahead of next month’s election.

Most economists in a Reuters poll last week thought the central bank would start cutting rates in August, but markets see only a 30% chance of a rate cut in August and think a first step is more likely in September or November.

Markets have priced in a 43 basis point easing in the BoE this year.

On the other hand, the Swiss National Bank is widely expected to cut its key policy rate by 25 basis points for a second meeting in a row. The Norwegian central bank is likely to leave its key policy rate unchanged.

In Asia, Japan’s Nikkei was 0.10% higher, while shares in China and Hong Kong fell, pressured by lackluster real estate stocks as Beijing left its key interest rates unchanged despite recent data showing the economy is still shaky.

The domestic yuan weakened above 7.26 per dollar for the first time since November.

The dollar index, which measures the US currency against six rivals, was little changed at 105.27, while the euro was steady at $1.0746.

A surge in technology stocks on Tuesday lifted AI chipmaker Nvidia above Microsoft as the world’s most valuable company, sparking a global rally in tech stocks.

US markets were closed on Wednesday, while tech-heavy Nasdaq futures rose 0.5% on Thursday.

The frenzy over artificial intelligence has seen tech stocks hit all-time highs all year long, with Nvidia leading the pack along with a select few giants, while US stocks are hitting record highs and also boosting Asian peers.

“Nvidia remains the most important stock in the world,” Chris Weston, head of research at Pepperstone, said in a note.

However, Weston warned that index market breadth was poor and participation was disappointing, suggesting the rally is built on shaky foundations.

“The fact remains that the market is now in the middle of the rally in AI-related names and big tech, and given the lack of clear immediate risk, the path of least resistance is to higher stock index levels.”

At the macro level, investors are looking for new clues about when the Federal Reserve might begin its policy easing cycle, after the central bank last week forecast only one rate cut this year and policymakers also turned cautious this week.

The Japanese yen languished at 158.17 per dollar as the wide spread in interest rates between Japan and the United States weighed on the currency. The yen has fallen more than 10% against the dollar this year. “I think the best-case scenario is a Fed rate cut in September, which will narrow the yield gap between the dollar and the yen,” said Stefan Hofer, chief investment strategist at LGT Bank Asia.

In commodities, oil prices were mixed, with Brent steady at $85.12 per barrel, while US West Texas Intermediate crude was 0.23% lower in June at $81.38 per barrel. (OR)

(Reporting by Ankur Banerjee, additional reporting by Summer Zhen in Hong Kong; Editing by Miral Fahmy)

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