SYDNEY (Reuters) – Asian stock markets rose on Monday, with expectations of faster economic growth and inflation globally affecting bonds and boosting commodities, although rising real yields are making stock valuations seem more strained in comparison.
The broader MSCI index for Asia Pacific stocks outside Japan rose 0.2%, after falling from a record high last week as the jump in US bond yields unsettled investors.
Japan’s Nikkei rebounded by 1.0% and South Korea by 0.4%, but Chinese blue chips lost 1.2%.
The S&P 500 and EUROSTOXX 50 futures hesitated around stability, while the FTSE futures fell 0.6%.
The bonds were hampered by the prospect of a stronger economic recovery and even more borrowing as President Joe Biden’s $ 1.9 trillion stimulus package moves forward.
“Yield curves have continued to rise, as COVID infection rates drop further, reopening plans are discussed and a large US fiscal stimulus package looks likely,” said Christian Keller, head of economic research at the Barclays.
“This, in principle, signals a better medium-term growth outlook for the US and beyond, as other yield curves are moving in the same direction,” he added. “Meanwhile, central banks seem ready to look through this year’s rise in inflation, keeping the short end of the curves anchored.”
Federal Reserve President Jerome Powell gives his semestral testimony to Congress this week and will likely reiterate his commitment to keeping the policy super easy for as long as it takes to raise inflation.
European Central Bank President Christine Lagarde is also expected to sound peaceful in a speech on Monday.
Yields on 10-year Treasury bills have already reached 1.38%, breaking the psychological level of 1.30% and taking the hike up to steep 43 basis points so far this year.
BofA analysts note that 30-year bonds have returned -9.4% in the year so far, the worst start since 2013.
“Real assets are outpacing financial assets by 21, as cyclical, political and secular trends indicate higher inflation,” analysts said in a note. “Rising products, energy laggards in vogue, materials in secular leaks.”
A COPPER RECOVERY
One of the stars has been copper, a key component of renewable technology, which rose 7.7% last week to a nine-year peak. Even the broadest LMEX base metals index rose 5.5% in the week.
Oil prices followed the rise, helped by tightening supplies and freezing weather, giving Brent gains of 22% so far this year. [O/R]
By early Monday, Brent oil futures were up another 50 cents at $ 63.41 a barrel, while U.S. oil was up 45 cents to $ 59.69 a barrel,
All of this has been a blessing for commodity-indexed currencies, with Canadian, Australian and New Zealand dollars rising sharply in the year so far.
The pound sterling peaked in three years at $ 1.4050, aided by one of the fastest vaccine implementations in the world. British Prime Minister Boris Johnson is expected to chart a course from the COVID-19 blockades on Monday.
The US dollar index has been relatively limited, with downward pressure on the country’s expanding twin deficits balanced by higher bond yields. The last index stood at 90,341, not far from where the year started at 90,260.
The increase in Treasury yields helped the dollar gain slightly against the yen, to 105.60, as the Bank of Japan is actively restricting income at home.
The euro was stable at $ 1.2128, trapped between support at $ 1.2021 and resistance at around $ 1.2169.
One commodity that is not doing so well is gold, partly because of rising bond yields and partly because investors question whether cryptocurrencies can be better protection against inflation. [GOL/]
The precious metal stood at $ 1,786 an ounce, having started the year at $ 1,896. Bitcoin fell 1.8% on Monday to $ 56,403, but started the year at $ 19,700.
Editing by Shri Navaratnam