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

A huge electric stock quotation board is seen inside a building in Tokyo, Japan, Dec 30, 2022. REUTERS/Issei Kato

SYDNEY  – Asian shares were subdued 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 percent and Hong Kong’s Hang Seng index fell 0.7 percent.

Japan’s Nikkei, however, gained 1 percent and was headed for a monthly rise of 8.5 percent and a quarterly jump of 19 percent.

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.

READ: Nasdaq edges up, S&P 500, Dow decline slightly; more Fed rate hikes in focus

Shares of Micron Technology rose 3 percent 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 percent target until 2025.

READ: Fed’s Powell does not rule out rate rise at coming meetings 

“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 percent after briefly spiking to 4.778 percent, 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 percent 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 percent on a year-over-year basis, still well above the Fed’s 2 percent 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 percent overnight, aided by hawkish comments from Powell and quarter-end rebalancing flows.

The greenback is down 0.5 percent in the first half of the year after hitting a decade high last year.

The yen regained some composure on Thursday, rising 0.2 percent to 144.26, but still just a touch below an eight-month low of 144.62 hit overnight, with markets on edge 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 percent at $74.00 per barrel.

Gold prices were 0.1 percent higher at $1,909.59 per ounce.