21-6-2023 (SYDNEY) The Asian stock market remained subdued on Wednesday as investors were frustrated by the lack of new stimulus steps from Beijing. The investors were also pondering about the future of the interest rate and how hawkish the world’s most powerful central banker, Federal Reserve Chair Jerome Powell, would be later in the session.
Powell is facing lawmakers in two days of testimony, and it is expected that he will be questioned on whether rates will rise again in July and peak in a 5.5 per cent-5.75 per cent range as projected. However, the markets have their doubts, and they currently imply around a 78 per cent chance of a hike to 5.25-5.5 per cent next month, with that likely being the end of the entire tightening cycle.
“The focus is on whether the July meeting is truly “live” and if the Fed dot plot of two more hikes is a true base case depending on the data, or doom-mongering on inflation in an effort to ensure no premature easing in financial conditions,” said Tapas Strickland, head of market economics at NAB.
The uncertainty kept S&P 500 futures and Nasdaq futures flat after a slight dip overnight. EUROSTOXX 50 futures edged up 0.2 per cent, and FTSE futures 0.1 per cent.
The MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.8 per cent, with South Korea off 0.5 per cent. Japan’s Nikkei inched up 0.1 per cent as the market consolidated three months of hefty gains. A survey showed morale at big Japanese manufacturers edged up in June to stay in positive territory for a second straight month.
Chinese blue chips eased 0.5 per cent with investors still disappointed by the extent of Tuesday’s rate cuts, which also saw the yuan hit its lowest for the year.
Elsewhere in currencies, the battered Japanese yen won some respite as risk aversion prompted profit-taking on very crowded short positions. The currency has been falling for weeks as the Bank of Japan (BOJ) doggedly defended its super easy policies.
Minutes of the central bank’s last meeting showed just one of nine board members suggested reconsidering its policy of keeping bond yields low, and even then suggested it was best to wait a while. That lack of urgency should limit any bounce in the yen and kept the dollar underpinned at 141.56 yen, only just off Tuesday’s seven-month high of 142.26.
The euro, likewise, steadied at 154.54 yen, after dipping from a peak of 155.37. The single currency was flat on the dollar at $1.0965, as was sterling at $1.2760.
The pound faces a significant test from data on UK consumer prices later in the day, where any upside surprise would add to pressure for the Bank of England (BoE) to hike by an outsized 50 basis points at its policy meeting on Thursday.
Median forecasts are for headline inflation to ease to 8.4 per cent, but core to hold at 6.8 per cent.
“We look for the BoE to hike 25bps on Thursday, but given that recent data have surprised to the upside, we see a good case for a 50bp hike,” wrote analysts at JPMorgan in a note. “We will be closely watching the CPI report for a signal on the BoE’s path to a terminal rate.”
Futures currently imply around a 25 per cent chance of a half-point hike.
Rising interest rates and higher bond yields have been a burden for gold which was pinned at $1,936 an ounce, just above last week’s three-month low of $1,924.99.
Oil prices edged higher after a couple of sessions of losses, still struggling with concerns about Chinese demand absent a sizable stimulus package. Brent added 17 cents to $76.07 a barrel, while US crude rose 20 cents to $71.39.
