SINGAPORE: Asian stocks rose to a one-month high as technology stocks rallied, while the dollar was unsteady as US retail sales data awaited the Federal Reserve’s interest rate cut later this year.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1% and gained more than 4% in June.
Tech stocks in the region rose more than 2% to record highs on Tuesday as AI darling Nvidia edged out Microsoft.
Futures show European exchanges are set for a more subdued session, with the FTSE 50 index little changed and the FTSE index down 0.18%.
Investors’ focus will be on UK inflation data, which will be the basis for the Bank of England’s (BoE) policy decision on Thursday, and the central bank is expected to hold interest rates.
The inflation report will show that the UK inflation rate returned to 2% in May from the BoE’s 2.3% in April, while the CPI service is expected to come in at 5.5% year-on-year in May from 5.9% in April.
Kyle Chapman, FX market analyst at the Ballinger Group, said on Wednesday that May’s inflation report will be the deciding factor and that cuts may still be on the table if service inflation rebounds.
“If it doesn’t collapse, it will take some evidence to convince us that the Bank of England is going down,” he said.
Sterling, which is down about 0.3% so far this month, last traded at $1.2708 and the euro was down 1% in June at $1.0736.
The single currency was under pressure after French President Emmanuel Macron’s centrist party called a general election after the European Parliament elections.
US markets are closed on Wednesday, which will cause trading to fluctuate throughout the day.
US retail sales barely rose in May, a sharp drop from last month’s figure, as data on Tuesday showed economic activity slowed in the second quarter.
According to the CME FedWatch tool, data shows that rates are expected to fall in September, and traders see a 67% chance of a rate cut. The market is down 48 basis points this year.
“(The Fed) needs more information to support its case for a rate cut, and investors should not get too carried away by one or two data points,” said Vasu Menon, director of investment strategy at OCBC.
The soft US inflation reading last week contrasted with the Fed’s general outlook, which cut its previous median forecast for a three-quarter rate cut this year.
“The price cut is a stronger story for 2025, but that’s good because even though 2024 remains uncertain, there is hope that it will materialize in the next two years and that will support the market,” Menon said.
Federal Reserve officials are looking for warning signs of refreshing inflation and a strong labor market as they cautiously anticipate a rate cut of one or two percent later this year.
In Asia, the new Japanese dollar was little changed at $157,835, off the six-week low of $158,255 touched last week. The currency remains under pressure from the difference between interest rates in Japan and the US.
The Bank of Japan’s April policy meeting showed policymakers debating the impact of the weak yen on prices, with some citing the possibility of faster-than-expected interest rate increases if inflation rises too high.
In commodities, oil prices rose, with Brent crude up 0.06% at $85.38 a barrel, while US West Texas Intermediate crude was little changed at $81.56 a barrel.
