Sydney, June 14 (BNA): Asian stocks struggled for momentum and the dollar slipped as the market focused on the potential for the Federal Reserve to be less aggressive at its policy meeting that concludes on Wednesday.
The Federal Reserve is widely expected to hold off on raising interest rates after the weak US inflation report and investors’ cautious mood is likely to extend to Europe when markets open, Reuters reported.
All-zone Euro Stoxx 50 futures fell 0.2%. S&P 500 and Nasdaq futures were flat, after US stocks rose to 14-month highs overnight.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2%, after rising 1.1% in the previous session to a two-month high.
Still, Tokyo’s Nikkei average continued to outperform, jumping 1.6% to a 33-year high, as investors welcomed the return of inflation amid the Bank of Japan’s accommodative policy stance.
Chinese blue chip stocks rose 0.2%, marking the fifth straight session of gains and moving away from their 2023 lows, on hopes of more economic stimulus. However, Hong Kong’s Hang Seng fell 0.4% amid concerns about whether the stimulus will be enough to revive the ailing economy.
Overnight, the much-watched US CPI report showed that prices barely rose in May, up just 0.1% from the previous month. On an annual basis, consumer prices rose 4%, the smallest in more than two years, slowing from 4.9% in April.
This has had traders anchoring their forecast for the Fed’s rate hike to 94% when it wraps up its two-day policy meeting on Wednesday, but they’re also bracing for the possibility of a hawkish surprise, with a 60% chance of being expected. up in July, according to CME FedWatch.
“While soft headline inflation data gives the Fed the green light to pause its rate hike cycle on Thursday, sticky core inflation will keep the Fed’s hawkish trigger finger hovering above the rate hike button in the coming months,” said Tony Sycamore. Market analyst at IG.
Perhaps a reflection of some of those concerns, the two-year Treasury yields reached 4.7070% overnight, the highest level since March, before falling 4 basis points to 4.6519% in Asian hours.
The benchmark 10-year bond yield rose to a 2-1/2 week high of 3.8450%. They last fell 3 basis points to 3.8056%.
“We think it will be a hawkish pause as the Fed confirms that the hiking cycle may not happen. Whether the pause turns into a skip will depend on the data coming in,” said Eugene Liu, chief rate strategist at DBS Bank.
Ongoing inflation pressures elsewhere are making markets jittery. Data showing a rapid recovery in UK wage growth in the three months to April could complicate matters for the Bank of England, which is due to discuss a monetary policy decision next week.
German short-term yields jumped to a 3-month high overnight as investors looked ahead to the European Central Bank’s interest rate decision on Thursday. It is expected to raise interest rates another quarter point and again in July before holding off for the rest of the year.
The US dollar remained under pressure in a narrow range on Wednesday at 103.29 against its major peers, just a touch above a three-week low hit overnight.
The euro was hovering around $1.0789 after hitting a three-week high of $1.0823 overnight, while the British pound held steady at $1.2607, close to the one-month high of $1.2625 reached on Tuesday.
Oil prices reversed earlier losses after receiving a 3% increase on the back of China’s interest rate cut. US crude futures settled at $69.42 a barrel, while Brent crude futures rose 0.2% to $74.41 a barrel.
Gold prices rose 0.3%, at $1,948.48 an ounce.
MI
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