SYDNEY (Reuters) – Asian stocks had record highs on Thursday, with investors digesting the substantial recent gains, while bulls were sustained by the promise of endless free money after a benign reading of US inflation and a dovish outlook on Federal Reserve.
Adding to the torpor was the lack of liquidity, since the markets of China, Japan, South Korea and Taiwan were all on vacation.
The broader MSCI index for Asia Pacific stocks outside Japan was 0.1%, having already risen in four sessions to more than 10% this year.
Japan’s Nikkei was closed after ending at a 30-year peak on Wednesday, while Australia’s main index has remained close to the top of the past 11 months.
With China shut down, there has been little reaction to news that the Biden government will consider adding “new targeted restrictions” to certain technology exports sensitive to the Asian giant and would maintain tariffs for now.
The S&P 500 and NASDAQ futures were stable, reaching historic highs on Wednesday. EUROSTOXX 50 futures and FTSE futures have barely moved.
Still, the prospect of more global stimulus had a big boost overnight, from a surprisingly smooth reading of US core inflation, which fell to 1.4% in January.
Federal Reserve Chairman Jerome Powell said he would like to see inflation reach 2% or more before even thinking about reducing the bank’s super easy policies.
Notably, Powell emphasized that, once the effects of the pandemic were eliminated, unemployment was closer to 10% than the reported 6.3% and therefore far from full employment.
As a result, Powell called for a “society-wide commitment” to reduce unemployment, which analysts saw as strong support for President Joe Biden’s $ 1.9 trillion stimulus package.
Indeed, Westpac economist Elliot Clarke estimated that more than $ 5 trillion in cumulative stimuli, worth 23% of GDP, would be needed to repair the damage caused by the pandemic.
“Historical experience provides a strong justification for taking action against unwanted inflationary pressures only after they are verified, after full employment has been achieved,” he said.
“To that end, financial conditions are expected to remain highly favorable to the US economy and global financial markets in 2021 and probably until 2022.”
The mix of bottomless Fed funds and a domesticated inflation report was a remedy for the bond market pains, leaving 10-year yields at 1.12%, up from a 1.20% rise earlier in the week.
That, in turn, weighed on the US dollar, which fell to 90,395 in a basket of currencies and came out of a 10-week top of 91,600 played at the end of last week.
The dollar fell to 104.57 yen, from a recent peak of 105.76, while the euro rose to $ 1.2122 from its $ 1.1950 low.
In commodity markets, gold was pushed aside at $ 1,838 an ounce, as investors took platinum to a six-year peak with higher demand bets from the automotive sector. [GOL/]
Oil prices have paused, having enjoyed the longest winning streak in two years amid supply cuts from producers and hopes that the launch of vaccines will lead to a recovery in demand. [O/R]
“Current price levels are healthier than the real market and depend entirely on supply cuts, as demand has yet to recover,” warned Bjornar Tonhaugen of Rystad Energy.
Brent crude futures dropped 40 cents to $ 61.07, while US crude fell 36 cents to $ 58.32 a barrel.
Additional reporting by David Henry in New York; Lincoln Feast and Sam Holmes edition