Asian shares subdued, yen and yuan hover near 8-month troughs

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Asian shares were sudued on Thursday after global central banks reaffirmed their inflation-fighting resolve, warning rates may need to rise further, while the yen and the Chinese yuan struggled to lift from lows amid fears of official intervention. MSCI’s broadest index of Asia-Pacific shares outside Japan was flat, while markets in Singapore, India and Malaysia are closed for holidays. Chinese blue chips slid 0.3% and Hong Kong’s Hang Seng index fell 0.7%.

Japan’s Nikkei, however, gained 1% and was headed for a monthly rise of 8.5% and a quarterly jump of 19%.The offshore yuan hovered near an eight-month trough at 7.24 per dollar on Thursday, after the central bank fixed the daily guidance at the weakest level since November.

Overnight, U.S. shares were mixed. The Nasdaq managed a small gain with support from tech stocks, with Apple registered a record closing high, while the Dow closed slightly lower. Shares of Micron Technology rose 3% after the bell. The company’s forecast of third-quarter results beat estimates, powered by demand from the booming artificial intelligence and an easing supply glut.

At a European Central Bank forum on Wednesday, Federal Reserve Chair Jerome Powell said the Fed will likely raise rates further and did not rule out a a hike for July. Notably, he said he did not see inflation abating to the 2% target until 2025.”The messaging was broadly a continuation of views signposted in previous comments and market reaction was relatively modest,” said Stephen Wu, an economist at the Commonwealth Bank of Australia.

Indeed, two-year Treasury yields closed at 4.722% after briefly spiking to 4.778%, as bond market continued to cast doubt on Fed’s hawkishness of two more hikes. They were little changed on Thursday. Futures see about an 80% chance the Fed will raise interest rates by 25 basis points in July, before holding rates steady for the remainder of the year.

European Central Bank President Christine Lagarde, on the other hand, cemented expectations for a ninth consecutive rise in euro zone rates in July. Markets have all but priced in two more rate hikes from the ECB this year. Bank of Japan (BOJ) Governor Kazuo Ueda said the central bank would see good reason to shift monetary policy if it became “reasonably sure” that inflation would accelerate into 2024 after a period of moderation.

Investors are now waiting for the U.S. Personal Consumption Expenditures (PCE) index reading on Friday, the Fed’s favored inflation gauge. Analysts polled by Reuters expect the core rate to be 4.7% on a year-over-year basis, still well above the Fed’s 2% target.

“Markets seem stuck in a holding patterns, watching in awe the inconsistencies between risk sentiment, yield curves, data surprises and inflation,” said Mark McCormick, global head of FX and EM Strategy at TD Securities. “For U.S., disinflation is the main driver and sending the strongest directional H2 cue for the USD: choppy but lower.”

The U.S. dollar was little changed against a basket of major currencies on Thursday, after rising 0.5% overnight, aided by hawkish comments from Powell and quarter-end rebalancing flows. The greenback is down 0.5% in the first half of the year after hitting a decade high last year.

The yen regained some composure on Thursday, rising 0.2% to 144.26, but still just a touch below an eight-month low of 144.62 hit overnight, with markets on egde for signs of intervention from Japanese officials. Oil prices were flat on Thursday. U.S. crude futures were little changed at 69.55 per barrel, and Brent crude was down 0.1% at $74.00 per barrel. Gold prices were 0.1% higher at $1,909.59 per ounce.


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