Asian markets were volatile on Wednesday following a tech-led surge on Wall Street as investors braced for the release of a key U.S. inflation reading, while the yen slid to levels that prompted intervention warnings from Japanese authorities.
The euro also remains under pressure ahead of France’s general election this weekend, with opinion polls predicting a landslide victory for far-right and left-wing parties, with President Emmanuel Macron’s centrist party coming in third.
With few catalysts for action, investors were jockeying ahead of Friday’s reading of personal consumption expenditures, the Federal Reserve’s preferred inflation gauge, in hopes that a weaker reading would encourage banks to cut interest rates soon.
Comments from the two monetary policymakers on Tuesday were not enough to raise hopes that a policy change is coming anytime soon.
Federal Reserve Governor Michelle Bowman warned that “we are not yet at the appropriate point to lower interest rates.”
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“We will continue to maintain a cautious stance as we consider future changes to our policy stance,” she said in prepared remarks.
Governor Lisa Cook expects inflation to slow this year and slow further next year, adding that borrowing costs could fall “at some point”.
Their comments are broadly in line with those of other bank officials who have said they want to see more evidence that prices are under control before deciding to cut rates.
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The Fed’s so-called “dot plot” interest rate guidelines suggest one rate cut by January, down from three expected in March, but there is debate over whether that would mean two cuts or none at all.
Stocks have been buoyed this year by hopes that authorities will ease policy after a long campaign to curb inflation.
But the stock rally is showing signs of fading as a wave of data shows the U.S. economy and labor market remain strong, leaving investors worried that valuations, especially among technology companies, may be overextended.
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On Tuesday, both the Nasdaq and the S&P 500 recovered from recent sell-offs thanks to AI chip giant Nvidia recovering from a three-day heavy sell-off.
Asian investors struggled to gauge direction early in trading amid volatility across many markets.
Tokyo, Seoul, Wellington, Taipei and Jakarta rose, while Shanghai, Sydney and Manila fell, while Hong Kong and Singapore were flat.
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Uncertainty over U.S. interest rates has kept the dollar strong, drawing attention to the yen approaching levels that forced Japan to enter the foreign exchange market earlier this year.
The country’s top currency official has said authorities are ready to act around the clock if the yen falls sharply. Billions of dollars were pumped into the currency to shore it up after it hit a 34-year low of 160.17 in late April.
Traders are also keeping a close eye on comments from the Bank of Japan, which many say is too cautious in moving away from its ultra-loose monetary policy.
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It is expected to raise interest rates next month and begin tapering bond purchases, which have helped to curb borrowing costs.
The euro maintained Tuesday’s losses ahead of the first round of French parliamentary elections on Sunday.
Macron called for early elections following a crushing defeat for his centre-right party at the hands of the far-right Rally for Europe (RN) in European Parliament elections two weeks ago.
There are fears that a major victory for the RN and the Left Coalition could see France, Europe’s second-largest economy and a key EU power, find itself at odds with Brussels over spending plans.
Tokyo – Nikkei Stock Average: up 1.4% to 39,726.39 (break)
Hong Kong – Hang Seng Index: flat at 18,067.54
Shanghai Composite Index: down 0.4% to 2,937.90
USD/JPY: Up to 159.80 yen from 159.68 yen on Tuesday
EUR/USD: up from $1.0715 to $1.0717
EUR/GBP: Up from 84.43p to 84.46p
Pound to dollar: up from $1.2686 to $1.2690
West Texas Intermediate: Up 0.3% to $81.05 a barrel.
Brent crude: up 0.2% to $85.21 per barrel
New York – Dow Jones Industrial Average: down 0.8% to 39,112.16 (closing price)
London – FTSE 100: down 0.4% to 8,247.79 (close)
Dan/MTP
