Asia-Pacific Shares Subdued as Central Banks Reaffirm Inflation-Fighting Resolve

A massive electric stock quotation board inside a building in Tokyo, Japan. (Image: REUTERS/Issei Kato)

SYDNEY – Asian shares remained subdued on Thursday following the reaffirmation of inflation-fighting measures by global central banks, with warnings that interest rates may need to rise further. The yen and the Chinese yuan struggled to recover from lows due to concerns of potential official intervention.

The MSCI Asia-Pacific index, excluding Japan, showed no significant change, while Singapore, India, and Malaysia markets were closed for holidays. In China, blue-chip stocks slipped 0.3%, and Hong Kong’s Hang Seng index dropped 0.7%. Conversely, Japan’s Nikkei gained 1%, setting it on track for a monthly rise of 8.5% and a quarterly jump of 19%.

The offshore yuan hovered near an eight-month low at 7.24 per dollar after the central bank set the daily guidance at the weakest level since November. In the US, the Nasdaq made a slight gain with support from tech stocks. Apple recorded a new record closing high, while the Dow closed slightly lower.

Micron Technology Experiences Growth in Demand

Shares of Micron Technology rose 3% after its third-quarter results exceeded expectations. The company reported increased demand from the booming artificial intelligence sector and a reduction in supply glut.

At a European Central Bank forum on Wednesday, Federal Reserve Chair Jerome Powell stated that interest rates are likely to continue rising. He did not rule out a possible hike in July and noted that he doesn’t expect inflation to reach the 2% target until 2025.

“The messaging was broadly a continuation of views signposted in previous comments, and market reaction was relatively modest,” said Stephen Wu, an economist at the Commonwealth Bank of Australia.

The US Treasury yields closed at 4.722% for two-year bonds after briefly spiking to 4.778%, further casting doubt on the Fed’s hawkishness for two more rate hikes. However, yields remained relatively unchanged on Thursday.

Expectations for Rate Hikes in Euro Zone

Futures indicate an 80% chance of the Fed raising interest rates by 25 basis points in July, followed by a holding pattern for the remainder of the year. Meanwhile, European Central Bank President Christine Lagarde cemented expectations for a ninth consecutive rate hike in the euro zone in July. Markets have already factored in two more rate hikes from the ECB this year.

The Bank of Japan (BOJ) Governor Kazuo Ueda stated that the central bank would consider changing its monetary policy if inflation shows signs of accelerating into 2024 after a period of moderation.

Focus on US Inflation Gauge

Investors are eagerly awaiting the release of the US Personal Consumption Expenditures (PCE) index on Friday, which is the Fed’s preferred inflation gauge. Analysts predict that the core rate will be at 4.7% on a year-over-year basis, which is still well above the Fed’s 2% target.

“Markets seem stuck in a holding pattern, observing the inconsistencies between risk sentiment, yield curves, data surprises, and inflation,” said Mark McCormick, the global head of FX and EM Strategy at TD Securities. “For the US, disinflation is the main driver and is providing a clear direction for the USD: choppy but lower.”

The US dollar had minimal changes against major currencies on Thursday after experiencing a 0.5% increase overnight. This was supported by Powell’s hawkish comments and quarter-end rebalancing flows. The dollar is down 0.5% in the first half of the year after reaching a decade high in the previous year.

The yen saw a slight recovery on Thursday, rising 0.2% to 144.26. However, it remains just below an eight-month low of 144.62 reached overnight. Investors are keeping an eye out for signs of intervention from Japanese officials. Oil prices remained flat, with US crude futures staying at $69.55 per barrel, and Brent crude decreasing by 0.1% to $74.00 per barrel. Gold prices rose 0.1% to $1,909.59 per ounce.

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