Asian markets ticked higher on Thursday 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 $2 trillion (€1.67tn) into the economy.
Hopes for an improvement in China-US relations were also given a lift by news that top Washington and Beijing officials will meet for their first talks next week.
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.
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.
Fresh China-US hopes
Asian markets were positive on Thursday, taking their lead from Wall Street, as well as a third straight record in Frankfurt and a one-year high for Paris. Hong Kong rose more than one per cent, with Taipei, Shanghai jumped more than two per cent and Seoul 1.9 per cent. Tokyo, Singapore, Wellington and Bangkok also rose, while Sydney was barely moved and Manila fell.
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, expand unemployment benefits, boost healthcare funding and ramp up vaccine distribution.
The get-together between key Chinese and US aides in Alaska also provided an optimistic tone on Thursday, after four years of Donald Trump’s sledgehammer diplomacy with Beijing that rattled world markets.
“Regional markets have seized on hopes that Sino-US relations could be about to improve, which will be bullish for trade and, by default, positive for Asia,” said OANDA’s Jeffrey Halley. “Those hopes may be premature, but that hasn’t stopped animal spirits from being released across mainland China equity markets, and their equally FOMO (fear of missing out) neighbours in Hong Kong, Taiwan and South Korea.”
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.