SYDNEY (Reuters) – Asian stock markets rose Monday as expectations for faster economic growth and inflation boosted global bonds and commodities, although rising real yields made equity valuations appear more tense in comparison.
MSCI’s widest index of Asia-Pacific stocks outside Japan added 0.2% after falling from a record high last week as the rise in US bond yields confused investors.
Japan’s Nikkei earned 1.0% and South Korea 0.4%, but Chinese blue chips lost 1.2%.
Futures on the S&P 500 and EUROSTOXX 50 both hesitated around flat, while FTSE futures fell 0.6%.
Bonds have been bruised by the prospect of a stronger economic recovery and even more lending as President Joe Biden’s $ 1.9 trillion stimulus package advances.
“Yield curves have steeped as COVID infection rates continue to decline, reopening plans are under discussion and a major US fiscal stimulus package appears likely,” said Christian Keller, Barclays chief economic researcher.
“This basically points to a better medium-term growth outlook for the US and beyond as other core yield curves move in the same direction,” he added. “Meanwhile, central banks appear to be ready to look through this year’s inflation hike, leaving the front of the curves anchored.”
Federal Reserve Chairman Jerome Powell is giving his semi-annual testimony to Congress this week and is likely to reiterate his promise to keep policies super easy to drive inflation for as long as it takes.
European Central Bank president Christine Lagarde is also expected to sound moderate in a speech later Monday.
Yields on 10-year Treasury bonds have already reached 1.38%, breaking the psychological level of 1.30% and rising 43 basis points for the year so far.
Analysts at BofA noted that bonds with a maturity of 30 years had returned -9.4% in the year to date, the worst start since 2013.
“Real assets outperform financial assets in ’21 as cyclical, political, secular trends say higher inflation,” the analysts said in a note. “Rising raw materials, energy laggards in vogue, materials in secular outbreaks.”
A COPPER RECOVERY
One of the stars is copper, a key component of renewable technology, which rose 7.7% last week to a peak in nine years. Even the broader LMEX base metal index rose 5.5% this week.
Oil prices followed suit aided by tight supplies and freezing weather, bringing Brent to a 22% profit for the year so far. [O/R]
Early Monday, Brent crude futures rose another 50 cents to $ 63.41 a barrel, while US crude added 45 cents to $ 59.69.
All of this has been a boon for commodity-pegged currencies, with the Canadian, Australian and New Zealand dollar all sharply higher for the year so far.
Sterling hit a three-year high at $ 1,4050, aided by one of the fastest vaccine rollouts in the world. British Prime Minister Boris Johnson will outline a path to the COVID-19 lockdowns on Monday.
The US dollar index was relatively band-linked, with downward pressure from the country’s growing double deficits offset by higher bond yields. The index last stood at 90,341, not far from where it started the year at 90,260.
Rising government bond yields have helped the dollar rise somewhat against the yen to 105.60 as the Bank of Japan actively controls interest rates at home.
The euro remained stable at $ 1.2128, between support at $ 1.2021 and resistance at $ 1.2169.
One commodity that is not doing so well is gold, partly due to rising bond yields and partly because investors are wondering if cryptocurrencies could be a better hedge against inflation. [GOL/]
The precious metal was trading at $ 1,786 an ounce and had started the year at $ 1,896. Bitcoin fell 1.8% on Monday at $ 56,403 but started the year at $ 19,700.
Editing by Shri Navaratnam