Asian and European markets extended gains yesterday following another record on Wall Street while the dollar hit a one-year high above ¥110, fuelled by growing optimism about the global economic recovery.
However, investors remain torn between vaccine-fuelled optimism over the economic outlook and fears over a surge in inflation the recovery is expected to bring with it.
With a number of big data announcements coming this week, analysts said traders were largely biding their time awaiting the next catalyst to drive buying, though most tip the year-long rally across equities to continue this year despite recent stutters.
The major call is Friday’s US government employment report, which will give the latest snapshot of the world’s top economy as it slowly emerges from the crisis, while private jobs and unemployment claims are also due, along with readings on manufacturing activity.
“With a lot of growing optimism in the price, economic data will need to do much heavy lifting in the future,” said Stephen Innes at Axi.
“And as we all know, nothing is a sure bet in the markets, especially when it comes to banking on lofty economic data expectations.”
Also in focus is Joe Biden’s much-anticipated infrastructure bill, which is tipped to be worth $3tn – some reports have suggested $4tn – and which follows his vast stimulus package.
The expected spending spree by the US government comes as the president pledged that 90% of American adults will be eligible for vaccination by April 19.
Meanwhile, his goal of getting 200mn people jabbed within his first 100 days also appeared to be well on course.
Innes added that with the Federal Reserve promising to keep monetary policy ultra-loose – and interest rates at record lows – for as long as needed, markets could be in for another strong advance.
Still, the threat that the economic reopening will see a huge jump in spending continues to weigh on market sentiment as traders fret it will force the Fed to tighten its belt earlier than 2024, as flagged.
US inflation remained stabilised for now, with data last week coming in below expectations.
But markets analyst Louis Navellier said: “China is starting to raise the price of some of their goods, so that we do have inflation out there brewing.
And it’s going to be very, very interesting, because raw commodity costs like copper and everything are going up as well.”
However, Esty Dwek at Natixis Investment Managers remained confident.
“The ongoing smooth vaccination in the US and extensive fiscal support is lifting the growth outlook, and with it, inflation expectations,” she said.
The rise in yields “has not led to flows out of equities.
The fundamental support for risk assets is in place”. Tokyo, Hong Kong, Shanghai, Seoul, Singapore, Taipei, Mumbai and Wellington all rose, though Sydney, Manila and Jakarta fell.
The dollar broke ¥110 for the first time since March last year as optimism about the global economic outlook and rising US bond yields saw investors turn away from the safe-haven Japanese unit.
“The dollar-yen trend is backed by the rise in Treasury yields as the market focuses on the extent of the potential US economic recovery,” said Masahiro Ichikawa, at Sumitomo Mitsui DS Asset Management.
“The dollar could rise to as high as ¥115 by the end of the year, depending on the pace of the recovery.”
Observers were tracking the fallout from the sale of billions of dollars worth of stock by troubled US fund Archego, which left several creditor banks exposed to huge losses, including Nomura of Japan and Switzerland’s Credit Suisse.
Nomura was down slightly in Tokyo, a day after plunging 16%.
In Tokyo, the Nikkei 225 closed up 0.2% to 29,432.70 points; Hong Kong – Hang Seng ended up 0.8% to 28,577.50 points and Shanghai – Composite closed up 0.6% to 3,456.68 points yesterday.
An electronic ticker displays share prices at the Tokyo Stock Exchange. The Nikkei 225 closed up 0.2% to 29,432.70 points yesterday.
