Asian stocks surged on Wednesday, driven by speculations of U.S. interest rate cuts, while the yen floundered at its lowest point since 1986, raising concerns about possible Japanese market intervention.
The MSCI’s broadest index of Asia-Pacific shares outside Japan climbed by 0.64%, spurred on by tech stocks. Meanwhile, Japan’s Nikkei leapt 1.4%, approaching the record highs seen in March.
European futures also pointed towards a positive opening, with Eurostoxx 50 futures up 0.5% and German DAX futures up 0.34%. Investors focused keenly on France’s political scene before the upcoming Sunday runoff election.
Jerome Powell, the Federal Reserve Chair, indicated on Tuesday that the U.S. was back on a “disinflationary path,” though he emphasized that more data is needed before considering rate cuts. His comments nudged U.S. Treasury yields down by 4.3 basis points overnight, stabilizing the 10-year note yield at 4.435% during Asian trading hours on Wednesday and keeping the dollar’s strength in check.
Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management, remarked, “Powell seemed fairly balanced – the U.S. is on the right track, but further data is essential. I believe rate cuts are likely this year, possibly starting in September, coinciding with the release of new economic forecasts.”
Market traders are currently betting on a 69% chance of the Fed reducing rates in September, expecting as many as two rate cuts this year, a significant shift from the over 150 basis points of easing anticipated at the beginning of the year.
Investors are also assessing data reflecting a tight U.S. labour market, with attention shifting to Friday’s nonfarm payrolls data, especially as U.S. markets will be closed on Thursday and have early closure on Wednesday.
Later in the day, minutes from the Fed’s last meeting are set to be released, providing more insights into their perspective on future rate moves.
The anticipation of a forthcoming U.S. rate cut has moderated the dollar’s rise, with the dollar index, which gauges the U.S. currency against six major counterparts, remaining steady at 105.74.
Chinese markets lagged behind, with the blue-chip CSI 300 index slipping 0.14%. In contrast, Hong Kong’s Hang Seng climbed 1%, led by gains in tech stocks. However, data revealed that China’s services sector grew at its slowest pace in eight months, and confidence hit a four-year low in June due to slower growth in new orders, highlighting the potential need for more economic stimulus.
Yen Vigilance
The yen hit a new 38-year low of 161.875 per dollar and has lingered near these levels since the end of June. This year, the yen has depreciated over 12% against the dollar, weakened by the substantial interest rate gap between the U.S. and Japan.
This gap has led to the yen being used in carry trades, where investors borrow in low-interest currencies to invest in higher-yielding assets. Market participants are vigilant for signs of Japanese authorities intervening to support the struggling yen, with some analysts speculating that intervention might occur at higher levels than current rates.
Alex Loo, macro strategist at TD Securities in Singapore, commented, “We believe interest in the pair has decreased as the threat of intervention looms around the 164-165 level.”
China’s yuan also edged down to a seven-month low against the dollar, with the central bank slightly lowering the currency’s trading range to facilitate its depreciation.
Elsewhere, the euro remained steady at $1.07437, just below the two-week high reached on Monday, amidst efforts by France’s National Rally (RN) opposition to block the far-right party from gaining power. The British pound last traded at $1.26875, with the UK general election on Thursday where the opposition Labour Party is widely expected to achieve a landslide victory.
In the commodities market, oil prices rose as U.S. industry data fueled hopes for strong fuel demand during the peak summer driving season in the world’s largest oil-consuming nation. Brent crude futures increased by 0.5% to $86.67 a barrel, while U.S. West Texas Intermediate crude futures climbed 0.46% to $83.19 per barrel.
Which Stock to Buy Next?
AI is transforming the stock market. Investing.com’s ProPicks offers six winning stock portfolios identified by advanced AI. In 2024 alone, ProPicks’ AI pinpointed two stocks that soared over 150%, four more that jumped over 30%, and three additional stocks that gained over 25%. So, which stock will be the next to skyrocket?
