SYDNEY (Reuters) – Asian stock markets rose yesterday as expectations of faster economic growth and inflation boosted global bonds and commodities, although rising real returns made the valuation of equities look better in comparison.
MSCI’s broadest Asia-Pacific equities index outside Japan rose 0.2% after declining from a record high last week as the rise in U.S. bond yields yielded uninhibited investors.
Japan’s Nikkei gained 1.0% and South Korea’s 0.4%, but Chinese blue chips lost 1.2%.
S&P 500 and EUROSTOXX 50 futures both hesitated, while FTSE futures fell 0.6%.
Bonds have been bruised by the prospect of a stronger economic recovery and even bigger loans as President Joe Biden’s $ 1.9 billion stimulus package progresses.
“The yield curves continue to increase as COVID infection rates fall further, reopening plans are discussed and a major U.S. fiscal stimulus package is likely to appear,” said Christian Keller, head of economic research at Barclays.
“This indicates in principle a better growth prospect in the medium term for the US and beyond, as other core yield curves move in the same direction,” he added. “Meanwhile, it looks like the central banks are going to examine this year’s inflation increase, keeping the front of the curves anchored.”
Federal Reserve Chairman Jerome Powell is giving his biannual testimony before Congress this week and is likely to repeat a commitment to keep policies as easy for as long as necessary to increase inflation.
European Central Bank President Christine Lagarde is also expected to speak in a speech later Monday.
Yields on 10-year treasury notes have already reached 1.38%, breaking the psychological level of 1.30% and bringing the year-on-year rise to a steep 43 basis points.
Analysts from BofA noted that 30-year bonds have returned -9.4% so far this year, the worst start since 2013.
“Real assets outperform financial assets in ’21, as cyclical, political, secular trends suggest higher inflation,” analysts said in a note. “The yield of commodities, backward energy in fashion, material in secular interruptions.”
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One of the stars was copper, a key component of renewable technology, which shot up 7.7% last week to a nine-year high. Even the broader LMEX base metal index climbed 5.5% this week.
Oil prices went through the ride, aided by stock sharpening and icy weather, which has boosted Brent profit so far this year by 22%. [O/R]
Early Monday, the Brent crude futures contract rose another 50 cents to $ 63.41 a barrel, while U.S. crude added 45 cents to $ 59.69,
This is all a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars for the year so far significantly higher.
Sterling achieved a top year of $ 1.4050, helped by one of the fastest explosions in the world. British Prime Minister Boris Johnson will have to figure out a way out of COVID-19 exclusions on Monday.
The US dollar index was relatively volatile, and the downward pressure forms the country’s growing twin deficits offset by higher bonds. The index was last at 90,341, not far from where it started the year at 90,260.
Rising Treasury yields helped the dollar rise somewhat on the yen to 105.60 as the Bank of Japan actively restrained yields at home.
The euro was stable at $ 1.2128, linked between support at $ 1.2021 and resistance around $ 1.2169.
One commodity that is not doing so well is gold, partly due to rising returns, and partly because investors are asking whether cryptocurrencies could be a better hedge against inflation. [GOL/]
The precious metal was $ 1,786 per ounce, starting the year at $ 1,896. Bitcoin was 1.8% lower at $ 56,403 on Monday, but started the year at $ 19,700.
Edited by Shri Navaratnam