Asia’s stock indexes were pegged back on Thursday with investors in downbeat mood after the US Fed signalled it’s likely to stick with its tough inflation stance.
That came after Federal Reserve Chair Jerome Powell repeated his recent hawkish tone on the bank’s likely interest rate path, dashing hopes of a turnaround.
Japan’s Nikkei gauge fell, snapping a two-day advance, as investors also locked in their profits after a recent surge in semiconductor shares.
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The Nikkei share average fell 0.92%, or 310.26 points, to close at 33,264.88, while the broader Topix was ahead 0.07%, or 1.49 points, to 2,296.50.
Hiroyuki Ueno, chief strategist of SuMi TRUST, confirmed “there has been some profit-taking selling” in chip shares after their rally through the year so far.
The blue-chip heavy Nikkei has soared 27% this year and earlier this week touched a 33-year high. Foreigners were net buyers of Japanese shares for an 11th-straight week through June 17, government data showed on Thursday.
But a technical indicator, known as the 14-day relative strength index (RSI), for the index stood at 73 at the close on Wednesday, above the 70-mark indicating an overheated market.
“The Nikkei was up 10 weeks in a row as of last week’s close. That’s unusual,” said Quiddity Advisors analyst Travis Lundy, who publishes on the Smartkarma platform. “The Nikkei has a fair bit of tech in it, and tech has been flying. When tech takes a breather, the Nikkei does too.”
Elsewhere across the region, in earlier trade, Sydney, Singapore, Mumbai, Manila, Wellington and Jakarta were all in the red, though Seoul eked out a gain. China and Hong Kong stock markets were closed for a holiday.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.24% lower at 521.81, set for a fourth straight day of losses and on course to snap its three-week winning run. The index is down around 2.7% for the week, the worst since early March.
Bank of England Rate Rise
Later in the day, the focus will switch to the Bank of England’s policy decision. A rate increase is widely expected and the only contention being how big the hike will be after inflation data came in hotter than expected on Wednesday.
Futures indicated stocks in Europe were set to open deep in red, with Eurostoxx 50 futures down 0.51%, German DAX futures down 0.55% and FTSE futures down 0.63%.
Last week, the Fed held its benchmark interest rate steady at between 5% and 5.25%, but officials projected rates will have to increase another half percentage point by year’s end to tame inflation.
Powell in his remarks to lawmakers in Washington on Wednesday said the outlook for two further 25-basis-point (bps) rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction.
Markets, though, remain unconvinced, pricing in a 72% probability of a 25 bps hike next month, but no further hikes after that, according to the CME FedWatch tool.
“[Over] the next six months, as much as we would like to stop talking about the Fed, it’s going to be the continued driver of sentiment in the market,” said Michael Dyer, investment director, multi assets at M&G Investments.
In the forex markets, against a basket of currencies, the US dollar rose 0.05% to 102.07, pinned near a one-month low of 102 it touched last week.
US crude fell 0.37% to $72.26 per barrel and Brent was at $76.86, down 0.34% on the day.
Spot gold dropped 0.1% to $1,929.69 an ounce, just above a three-month low it touched on Wednesday.
Key figures
Tokyo – Nikkei 225 < DOWN 0.92% at 33,264.88 (close)
Hong Kong – Hang Seng Index <> CLOSED
Shanghai – Composite <> CLOSED
London – FTSE 100 < DOWN 0.86% at 7,494.38 (0931 GMT)
New York – Dow < DOWN 0.30% at 33,951.52 (Wednesday close)
- Reuters with additional editing by Sean O’Meara
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