Asia shares subdued, yen shunned as euro shines

Examples of Japanese yen banknotes are displayed at a factory of the National Printing Bureau producing Bank of Japan notes at a media event about a new series of banknotes scheduled to be introduced in 2024, in Tokyo, Japan. REUTERS/Kim Kyung-Hoon

SYDNEY  – Asian shares stalled on Wednesday as surprisingly upbeat U.S. economic news warred with global growth concerns, while the embattled yen hit a 15-year low on the euro and Japan hinted at intervention to prevent further losses.

The strength of U.S. data also combined with hawkish commentary from the European Central Bank to undermine bonds as markets narrowed the odds on further rate hikes.

That only heightened attention on a star-studded panel of central bankers later in the day in Portugal which includes Federal Reserve Chair Jerome Powell, ECB head Christine Lagarde and Bank of Japan Governor Kazuo Ueda.

“The U.S. data signals continued resilience in interest rate sensitive sectors, and the Fed is very clear that a period of sub-trend activity may be needed to bring inflation under control,” said analysts at ANZ. “So far, that doesn’t seem to be happening.”

“For the ECB, senior officials signaled the need for ongoing tightening unless core inflation slows materially and a September rate hike is looking increasingly on the cards.”

The rate risk kept markets cautious and MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.2 percent.

Chinese blue chips dipped 0.6 percent and the yuan eased anew after Beijing fixed the currency lower than many had expected, sowing confusion about whether policy makers really wanted to slow its slide.

Sentiment was not helped by a Wall Street Journal report that Washington was considering new restrictions on exports of artificial intelligence chips to China.

The report knocked Nvidia 3 percent lower after the bell and dragged Nasdaq futures down 0.4 percent.

Yet it seemed to be welcome news for Japan’s tech companies, which drove a 1.5-percent rally in the Nikkei. Chip groups Tokyo Electron and Advantest led the gains.

EUROSTOXX 50 futures added 0.3 percent and FTSE futures 0.2 percent.

S&P 500 futures dipped 0.2 percent, though that followed solid gains on Tuesday as U.S. data on housing, durable goods orders and consumer sentiment handily topped expectations.

“The data indicated a firmer pace of residential, inventory, and equipment investment in the second quarter,” wrote analysts at Goldman Sachs. “We boosted our Q2 GDP tracking estimate by 0.4pp to +2.2 percent.”

That resilience offset recent softness in manufacturing surveys and led the market to narrow the odds on a July rate hike from the Federal Reserve.

Futures now imply around a 77-percent chance of a hike to 5.25-5.5%, and slightly more risk of a further move to 5.5-5.75 percent, which nudged short-term Treasury yields higher.

Euro on the rise

Bond yields also moved sharply higher in Europe after a bevy of central bankers sounded hawkish on inflation and warned rates would likely have to stay higher for longer.

Markets imply a 90- percent probability of an ECB rate hike to 3.75 percent in July and a peak around 4 percent.

That underpinned the euro at $1.0950, while keeping it near a 15-year peak of 157.97 yen.

The dollar had hit a near eight-month top of 144.18 yen, before easing back to 143.96 as Japanese officials again protested against the yen’s weakness.

Japan’s top currency diplomat Masato Kanda on Wednesday warned against further falls in the yen, saying authorities would take an appropriate response if moves became excessive.

Markets are wary in case Japan intervenes to buy the yen as it did last October, which knocked the dollar down from a top of 151.94 to as low as 144.50 in a matter of hours.

Yet, a rally in the yen looks unlikely while the Bank of Japan maintains its super-easy monetary policy.

“Following BOJ Governor Ueda’s consistently dovish message and weak Japanese wage growth, market participants now lack the conviction the BOJ will soon tighten its monetary policy,” said Carol Kong, a currency strategist at CBA.

“So we now see a higher risk Japanese authorities will step into the market to prop up the JPY.”

In commodities, gold steadied at $1,915 an ounce, after finding support at the recent three-month low of $1,909.99.

Oil prices edged up after data showed a larger-than-expected draw in U.S. crude and gasoline inventories, but remains uncomfortably close to its lows for the year so far.

Brent firmed 33 cents to $72.59 a barrel, while U.S. crude rose 20 cents to $67.90.