Asian markets ticked higher yesterday as inflation concerns eased, allowing investors to focus on the global recovery and progress in fighting the coronavirus pandemic.
Investors were given a positive lead from Wall Street, where the Dow ended at a new record, helped by news that Joe Biden’s stimulus had cleared its last hurdle in Congress, as expected, meaning he can sign it into law before the weekend, pumping almost $2tn into the economy.
Fears that a strong rebound in world growth this year will cause a surge in inflation that forces the Federal Reserve and other central banks to wind back their ultra-loose monetary policies – including record low interest rates – have fuelled a sell-off across risk assets in recent months.
But data on Wednesday showing US prices rose slightly less than expected in February soothed those concerns, with the main diver of the increases being food and energy costs.
That came as a closely watched auction of benchmark US 10-year Treasuries went off without any problems with the notes selling at a yield broadly in line with expectations.
Worries about a surge in inflation have lifted US yields to around one-year highs, while a weak sale of seven-year bonds sparked a stock market sell-off.
Yields rise as prices fall.
“For now there is nothing for the inflationistas to ring the alarm, while at the same time it provides the Fed plenty of breathing space ahead its meeting next week,” said National Australia Bank’s Rodrigo Catril.
The inflation data “suggests the music will keep playing for some time, with the Fed not even close to pondering the option of watering down the punchbowl”. He said the consumer price index will naturally jump next month owing to the low base effect from last year. Asian markets were positive yesterday, taking their lead from Wall Street, as well as a third straight record in Frankfurt and a one-year high for Paris.
Hong Kong, Shanghai and Taipei all rose more than 1% while Seoul jumped 2%.
Tokyo, Singapore, Wellington also rose while Sydney was flat, though Manila dipped.
Tokyo’s Nikkei 225 closed 0.5% up at 29,179.84 points, Hong Kong’s Hang Seng ended 1.4% up at 29,318.45 points and Shanghai’s Composite closed 1.7% up at 3,412.61 points.
The healthy US data came as the House of Representatives passed Biden’s economic rescue package, which will plant up to $1,400 into struggling Americans’ pockets, expend unemployment benefits, boost healthcare funding and ramp up vaccine distribution.
Eyes are now on the European Central Bank’s policy meeting later in the day, which will be followed for its outlook on interest rates and its vast bond-buying programme as the world economy recovers from last year’s collapse.
The Fed holds its gathering next week, which Axi’s Stephen Innes said “could provide a trigger for a renewed selloff in US rates” if policymakers continue to brush off the rise in bond yields.
Motorists travel past a screen displaying stock figures in Shanghai. The Composite closed 1.7% up at 3,412.61 points yesterday.
