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Asian stocks hold on to gains; BoE in focus

By Thomson Reuters Jun 19, 2024 | 9:38 PM

By Ankur Banerjee

SINGAPORE (Reuters) – Asian stocks took a breather on Thursday, hovering near their highest in two years as traders waited for more U.S. policy clues, while sterling was steady before a Bank of England meeting where rates are expected to remain unchanged.

Apart from the BoE, investors will also watch out for central bank decisions from Switzerland and Norway on Thursday to set the tone for global rates outlook.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed at 572.97, just shy of the two year high of 573.38 it touched on Wednesday boosted by tech stocks. The index is on course for a 4% rise in June.

Japan’s Nikkei fell 0.63%, while stocks in China were also lower, with the blue-chip index down 0.34%. Hong Kong’s Hang Seng index 0.14% lower.

China left benchmark lending rates unchanged at a monthly fixing on Thursday, in line with market expectations, despite recent showing the economy remains wobbly.

The onshore yuan weakened past 7.26 per dollar for the first time since November.

The pound was steady at $1.2717 ahead of BoE policy decision and is down 0.2% in June. [FRX/]

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

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

Markets have priced in 43 basis points of easing from BoE this year.

The Swiss National Bank on the other hand is widely expected to cut its key policy rate by 25 basis points for a second straight meeting. Norway’s central bank is likely to keep its key policy interest rate unchanged.

NVIDIA LED RALLY

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

U.S. markets were closed on Wednesday, with tech heavy Nasdaq futures up 0.25% in early trading on Thursday.

The frenzy over artificial intelligence has resulted in technology stocks roaring through the year, with Nvidia leading the pack along with select few behemoths as U.S. stocks clock record highs and also boost Asian counterparts.

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

Weston though cautions index market breadth has been poor, with participation underwhelming, suggesting the rally has been built on a shaky foundation.

“The fact remains the market is now all in on the rally in AI-related names and big tech and given the lack of clear immediate risk the path of least resistance is for higher equity index levels.”

On a macro level, investors are looking for fresh cues as to when the Federal Reserve would start its policy easing cycle after the central bank last week projected just one rate cut in the year and policymakers this week have also been cautious.

The dollar index, which measures the U.S. unit against six rivals, was little changed at 105.23, while the euro was steady at $1.0746.

The Japanese yen languished at 158.05 per dollar as the wide difference in the interest rates between Japan and the United States weigh on the currency. The yen is down over 10% against the dollar this year. “I think the best-case scenario is September Fed interest rate cut that narrows the yield differential between dollar and yen”, according to Stefan Hofer, chief investment strategist, 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,” said Hofer.

In commodities, oil prices were mixed, with Brent steady at $85.08 per barrel, while U.S. West Texas Intermediate crude for June was 0.18% lower at $81.42 per barrel. [O/R]

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