SYDNEY (Reuters) – Asian equities became mixed on Monday as expectations of faster economic growth and global inflation beat bonds and commodities rose, while rising real yields did that stock valuations had a more extensive look in comparison.
MSCI’s broader Asia-Pacific stock index outside of Japan remained flat, after falling from a record last week as the jump in US bonds produced volatile investors.
The Japanese Nikkei recovered 0.8% and South Korea 0.1%, but the Chinese blue chips lost 1.4%.
S&P 500 futures fell 0.1% and EUROSTOXX 50 futures 0.3%, while FTSE futures fell 0.7%.
Bonds have been hit by the prospect of a stronger economic recovery and higher indebtedness as President Joe Biden’s $ 1.9 trillion stimulus package moves forward.
“Performance curves have continued to intensify as COVID infection rates decline further, reopening plans are discussed and there seems likely to be a large fiscal stimulus package in the United States,” he said. Christian Keller, head of economics research at Barclays.
“This in principle points to a better medium-term growth outlook for the United States and beyond, as other core yield curves move in the same direction,” he added. “Meanwhile, central banks seem willing to look at this year’s rising inflation, keeping the front of the curves anchored.”
Federal Reserve Chairman Jerome Powell is presenting his half-yearly testimony to Congress this week and is likely to reiterate his commitment to keeping politics very easy for as long as it takes to raise inflation.
European Central Bank President Christine Lagarde is also expected to look bad in a speech last Monday.
10-year Treasury bill yields have already reached 1.38%, surpassing the psychological level of 1.30% and bringing the year’s rise to 43 basis points.
BofA analysts noted that 30-year bonds had returned -9.4% during the year so far, the worst start since 2013.
“Real assets outperform large financial assets by 21, as cyclical, political and secular trends call for higher inflation,” analysts said in a note. “Rising goods, energy lag in vogue, materials in secular ruptures.”
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 high. Even the broadest LMEX base metal index rose 5.5% a week.
Oil prices have risen along the way, helped by a tightening of supplies and an icy climate, which has given Brent gains of 22% over the year so far. [O/R]
On Monday, futures on Brent crude rose 66 cents more to $ 63.57 a barrel, while U.S. crude added 51 cents to $ 59.75.
All this has been an advantage for commodity-related currencies, with the Canadian, Australian and New Zealand dollars so far much higher.
The pound reached a three-year high at $ 1.4050, helped by one of the fastest vaccine launches in the world. British Prime Minister Boris Johnson will on Monday outline a path from the COVID-19 blockades.
The U.S. dollar index has been relatively limited, with downward pressure on the country’s expanding twin deficits balanced by higher bond yields. The index last stood at 90,342, not far from where the year began at 90,260.
Rising Treasury yields have helped the dollar gain a little yen to 105.60, as the Bank of Japan is actively restricting yields at home.
The euro remained stable at $ 1.2120, between support at $ 1.2021 and resistance around $ 1.2169.
One commodity that doesn’t do so well is gold, in part because of rising bond yields and in part because investors are wondering if cryptocurrencies can be a better hedge against inflation. [GOL/]
The precious metal stood at $ 1,783 an ounce, after starting the year at $ 1,896. Bitcoin fell 2.2% Monday to $ 56,209, but started the year at $ 19,700.
Edited by Shri Navaratnam and Jacqueline Wong