20-7-2023 (SINGAPORE) Asian stocks experienced gains while sterling faced a stumble on Thursday as UK inflation figures showed a cooling trend, boosting risk appetite ahead of upcoming central bank meetings. However, U.S. futures saw a decline due to disappointing earnings results from Netflix and Tesla.
The MSCI’s broadest index of Asia-Pacific shares, excluding Japan, rose by 0.53%, putting an end to its three-day losing streak. Meanwhile, Japan’s Nikkei slid by 0.93%.
China’s stocks have faced pressure recently as soft economic data weighed on sentiment, leading investors to anticipate significant stimulus measures to reinvigorate the country’s post-pandemic recovery.
On Thursday, the Shanghai Composite Index rose by 0.1%, while Hong Kong’s Hang Seng Index gained 0.3%.
Data from Wednesday showed that Britain’s high rate of inflation fell more than expected in June, reaching its slowest rate in over a year at 7.9%. This caused markets to dial back expectations of further aggressive rate hikes from the Bank of England.
As a result, the pound last fetched $1.2959, marking a 0.17% increase for the day, despite experiencing a 0.7% overnight drop.
Investor focus now turns to central bank meetings in Japan, Europe, and the United States before the Bank of England’s scheduled meeting in the first week of August.
The European Central Bank is expected to raise its benchmark rate by 25 basis points, but there is debate over what comes next after the recent dovish tone from the central bank’s policymakers.
Bank of Japan Governor Kazuo Ueda’s recent statement suggests that there is still some distance to achieving the central bank’s 2% inflation target sustainably and stably, ruling out a hawkish policy shift in the upcoming week.
Traders appear more certain about the Federal Reserve’s next steps, expecting a 25 basis point hike but no further increases after that.
“As investors grow more confident that peak inflation is definitively behind us, so do expectations that the U.S. Federal Reserve’s current rate hiking cycle will finally be over” after the upcoming meeting, stated Nuveen’s Chief Investment Officer Saira Malik.
However, Malik also cautioned that potential cracks in the economy and corporate earnings could trip up the running bulls.
Overnight, the Dow Jones Industrial Average and S&P 500 index registered modest gains, with the Dow marking its eighth straight day of increases.
In Asian trade, futures for the S&P 500 fell by 0.15%, and Nasdaq futures dropped 0.44% following disappointing earnings results from streaming giant Netflix and electric vehicle maker Tesla.
Netflix’s second-quarter revenue fell short of analyst estimates, while Tesla reported automotive gross margin in line with Wall Street estimates but significantly lower than the previous year. Elon Musk, Tesla’s CEO, indicated the possibility of further price cuts on electric vehicles, impacting the company’s margins.
Investors will also closely monitor earnings results from Taiwanese chipmaker TSMC later in the day.
In the currency market, the onshore yuan saw a surge after China’s central bank relaxed a cross-border financing rule, making it easier for domestic firms to raise funds from overseas markets and alleviating depreciation pressure on the yuan.
The Australian dollar rose by 0.86% to $0.683 after strong domestic jobs data.
The Japanese yen strengthened by 0.32% to 139.23 per dollar, while the dollar index, measuring the U.S. currency against six rivals, eased by 0.209%.
In commodities, Chicago wheat futures rose by 1.4%, hitting a three-week high, amid expectations that an attack on Ukrainian ports following Russia’s withdrawal from a Black Sea export deal would have a long-term impact on global supply.
U.S. crude fell by 0.11% to $75.27 per barrel, and Brent was at $79.62, marking a 0.2% increase for the day.
