Asian stocks rose and sterling stumbled on Thursday as cooling UK inflation lifted risk appetite ahead of central bank meetings next week, while disappointing earnings results from Netflix and Tesla pushed U.S. futures lower. Meanwhile, China's yuan shot up after authorities tweaked cross-border financing rules and major state-owned banks were seen selling dollars in moves analysts said were designed to shore up the currency.
MSCI's broadest index of Asia-Pacific shares outside Japan was 0.53% higher, on course to snap its three-day losing streak. Japan's Nikkei slid 0.93%. China stocks have been under pressure in recent weeks as soft economic data weighed on sentiment, with investors waiting for meaningful stimulus to jump start the country's stuttering post-pandemic recovery. On Thursday, the Shanghai Composite Index was 0.1% higher, while Hong Kong's Hang Seng Index gained 0.3%.
Central Bank Meetings:
The Bank of England is due to meet in the first week of August, but before that, central bank meetings in Japan, Europe, and the United States will likely grab investors' attention. Traders and analysts expect the European Central Bank to raise its benchmark rate by 25 basis points, but the post-meeting direction remains uncertain due to recent dovish tones from the central bank's policymakers. The Bank of Japan Governor Kazuo Ueda dampened speculation of a hawkish policy shift next week, stating that there was still some distance to achieve the central bank's 2% inflation target. Markets seem more certain of the Federal Reserve's next steps, expecting a 25 basis point hike but no more after that.
Corporate Earnings Impact:
Overnight, the Dow Jones Industrial Average and S&P 500 index rose modestly, with the blue-chip Dow registering its eighth straight day of gains. However, futures fell in Asian trade after earnings reports from streaming giant Netflix and EV maker Tesla disappointed Wall Street. Netflix's second-quarter revenue fell short of analyst estimates, while Tesla's automotive gross margin was in line with Wall Street estimates but significantly lower than the previous year. Tesla CEO Elon Musk's all-out price war on automaker rivals is squeezing the company's margins. Investors will keep an eye on earnings results from Taiwanese chipmaker TSMC later in the day.
Forex Strategy Currency Market:
In the currency market, the onshore yuan jumped after China's central bank relaxed a cross-border financing rule, making it easier for domestic firms to raise funds from overseas markets and easing depreciation pressure on the yuan currency. The Australian dollar rose after strong domestic jobs data, while the Japanese yen strengthened against the dollar. The dollar index, which measures the U.S. currency against six rivals, eased slightly.
Chicago wheat futures rose to a three-week high on growing expectations that an attack on Ukrainian ports after Russia's withdrawal from a Black Sea export deal would have a longer-term impact on global supply. U.S. crude fell slightly, while Brent crude was up on the day.
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Market sentiment in the Asian session is mixed, with Asian stocks rising but China's economy still facing soft economic data and waiting for further stimulus. The sterling stumbled due to cooling UK inflation, lowering expectations of aggressive rate hikes from the Bank of England. Central bank meetings in Japan, Europe, and the United States are likely to be the focus of investors, with uncertainties surrounding policy directions. Corporate earnings from Netflix and Tesla have impacted U.S. futures negatively, while traders await results from other companies. The currency market experienced movements, particularly in the yuan and Australian dollar, while commodities witnessed changes due to geopolitical events.
*Note: This brief is for informational purposes only and should not be considered as financial advice. Trading in the forex market involves risks, and individuals should conduct their own research and consult with a professional financial advisor before making any investment decisions.*