Asian stocks wobbled in early trade on Wednesday, as markets braced for a key reading on US inflation, while the yen held just short of the 160 per dollar level, keeping traders on edge. alert for a new series of interventions by the Japanese authorities.
Risk sentiment was also limited by hawkish comments from Federal Reserve officials who maintained expectations of U.S. rate cuts in the near term, which boosted the dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed at 566.55 in a choppy market, pulling away from the two-year high of 573.38 it touched last week . The index is still up 3.5% in June, on track for a fifth straight month of gains.
Japan’s Nikkei and Taiwanese stocks climbed, led by chipmakers, following the tech Nasdaq’s rally Tuesday, with Nvidia jumping more than 6%, emerging from a three-session slide that wiped out about $430 billion of its market value.
Chinese stocks, however, fell slightly, with the CSI300 index and Shanghai Composite Index both down 0.2% and heading for a 4% decline for the month.
Hong Kong’s Hang Seng Index also lost 0.16%.
On the U.S. monetary policy front, Fed officials called for patience on interest rate cuts, with Governor Lisa Cook saying the central bank was on track for a rate cut if the performance of the economy met his expectations. However, Cook declined to say when the Fed would be able to act.
US Federal Reserve Governor Michelle Bowman reiterated her view that maintaining the policy rate “for a while” will likely be enough to keep inflation in check.
These comments, along with data showing the housing market’s stability, helped contain expectations about the timing and extent of the Fed’s rate cut. Markets are pricing in 47 basis points of easing this year, with a 66% chance of a rate cut in September, according to the CME’s FedWatch tool.
“The disinflation trajectory remains intact, but the last mile has been bumpy and difficult to navigate,” Selena Ling, head of research and strategy at OCBC, said in a note.
Traders are eagerly awaiting Friday’s release of the U.S. personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, with economists polled by Reuters expecting annual growth to slow to 2.6% in May.
“Barring further shocks to energy markets and/or supply chains, future lower inflation and rebalancing of the labor market will allow the data-dependent Fed to reduce its rates up to twice this year,” said OCBC’s Mr Ling.
In the currency market, the dollar index, which measures the U.S. unit against six others, was flat at 105.64, while the euro was at $1.0715.
The Australian dollar rose after data showed consumer price inflation accelerated to a six-month high in May, leading markets to reduce the chances of another rate hike as early as August. The Australian dollar was up 0.39% at $0.6674.
The yen was trading at 159.79 per dollar and traded in tight ranges as it seeks to reach the crucial 160 level that some traders fear could lead to another round of intervention.
On April 29, the yen hit a 34-year low of 160.245 to the dollar, prompting Tokyo to spend around 9.8 trillion euros in late April and early May to prop up the currency.
The yen’s latest decline was triggered by the Bank of Japan’s (BOJ) June meeting, where policymakers disappointed investors who were betting on an immediate reduction in the central bank’s massive bond purchases.
However, the BOJ is giving signals that its quantitative tightening plan in July could be bigger than markets think, and could even be accompanied by higher interest rates, as it withdraws gradually from its still considerable monetary stimulus measures.
In commodities, oil prices were little changed in Asian trading, with Brent crude oil futures flat at $85.02 a barrel, while U.S. crude oil futures West Texas Intermediate were at $80.9 per barrel.
The price of gold fell to $2,318 an ounce, but remains up 12% this year, after hitting a record $2,449.89 last month.
