Asian Shares Steady as Markets Await Central Bank Decisions; Sterling Cautious Before BoE Meeting

Infotrading.io - Asian shares took a pause on Thursday, hovering near their highest levels in two years as investors awaited further policy signals from the United States. Meanwhile, sterling maintained a steady course ahead of a Bank of England (BoE) meeting, where interest rates are expected to remain unchanged.

Market Overview

The MSCI's broadest index of Asia-Pacific shares outside Japan remained almost unchanged at 572.42, just shy of the two-year high of 573.38 reached on Wednesday, bolstered by a rally in tech stocks. The index is on track for a 4% rise in June, reflecting strong market sentiment in the region.

European stock markets were also poised for a higher open, with Eurostoxx 50 futures and FTSE futures each up by 0.2%, anticipating a series of central bank decisions that could shape the global economic outlook.

Sterling and Bank of England

Sterling held steady at $1.27125 in cautious trading, despite a 0.2% decline in June. Data released on Wednesday indicated that British inflation had returned to its 2% target for the first time in nearly three years in May. However, strong underlying price pressures suggest that an interest rate cut is unlikely before the upcoming election next month.

Most economists in a recent Reuters poll predicted that the BoE would start cutting rates in August, although market sentiment suggests a higher likelihood of a rate cut in September or November. Markets have priced in 43 basis points of easing from the BoE this year.

Central Bank Decisions in Switzerland and Norway

In Switzerland, the Swiss National Bank is widely expected to cut its key policy rate by 25 basis points for the second consecutive meeting. Meanwhile, Norway's central bank is likely to keep its key policy interest rate unchanged.

Asian Market Performance

In Asia, Japan's Nikkei edged up by 0.10%, while stocks in China and Hong Kong fell, dragged down by lackluster performance in the property sector. Despite recent economic data indicating a wobbly economy, Beijing left its key benchmark lending rates unchanged. The onshore yuan weakened past 7.26 per dollar for the first time since November.

The dollar index, which measures the U.S. unit against six rivals, remained steady at 105.27, while the euro was unchanged at $1.0746.

Technology Stocks and Nvidia's Surge

A surge in tech stocks on Tuesday propelled AI chipmaker Nvidia (NASDAQ: NVDA) above Microsoft (NASDAQ: MSFT) as the world's most valuable company, igniting a global rally in tech shares. U.S. markets were closed on Wednesday, but tech-heavy Nasdaq futures were up 0.5% on Thursday.

The excitement surrounding artificial intelligence has driven technology stocks to record highs, with Nvidia leading the charge. This rally has also buoyed Asian tech stocks. Chris Weston, head of research at Pepperstone, emphasized Nvidia's significance, stating, "Nvidia remains the most important stock in the world."

However, Weston also cautioned that the market's breadth is poor, with underwhelming participation, suggesting that the rally might be on shaky ground. "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," Weston noted.

Macroeconomic Outlook

On a broader scale, investors are keenly watching for cues on when the Federal Reserve might start its policy easing cycle. Despite the Fed projecting just one rate cut this year, policymakers have remained cautious.

The Japanese yen languished at 158.17 per dollar, pressured by the significant interest rate differential between Japan and the United States. The yen has depreciated over 10% against the dollar this year. Stefan Hofer, chief investment strategist at LGT Bank Asia, commented, "I think the best-case scenario is a September Fed interest rate cut that narrows the yield differential between the dollar and yen."

Commodities Market

In commodities, oil prices were mixed, with Brent crude steady at $85.12 per barrel, while U.S. West Texas Intermediate crude for June fell by 0.23% to $81.38 per barrel.

As markets await central bank decisions, Asian shares remain steady near two-year highs, reflecting cautious optimism. Sterling's stability ahead of the BoE meeting, along with significant movements in tech stocks, underscores the intricate interplay of global economic factors. Investors will continue to monitor these developments closely to gauge the future direction of the markets.