By Wayne Cole
SYDNEY () – Asian stock markets rose higher on Monday as expectations of faster economic growth and inflation hit bonds and boost commodities globally, although rising real interest rates also make stock values look more stretched in comparison.
MSCI’s broadest index of stocks in the Asia-Pacific region outside Jan added 0.1%, after easing from a record high last week as the jump in US bond yields yielded unsettled investors.
Jan’s Nikkei gained 1.0% and South Korea 0.4%, while the E-Mini futures for the S&P 500 were a fraction firmer.
Bonds have been shattered by the prospect of a stronger economic recovery and even greater borrowing as President Joe Biden’s $ 1.9 trillion stimulus package progresses.
“Yield curves remain stronger as COVID infection rates fall further, reopening plans are discussed, and a major US fiscal stimulus package looks likely,” said Christian Keller, head of economic research at Barclays.
“This signals in principle 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 looking through this year’s inflation increase and keeping the front end of the curve anchored.”
Federal Reserve Chairman Jerome Powell is delivering his biannual testimony to Congress this week and is likely to repeat a commitment to keep policy super easy for as long as it takes to drive inflation higher.
European Central Bank President Christine Lagarde is also expected to sound dovish in a speech later Monday.
The yield on 10-year government bonds has already reached 1.36%, which breaks the psychological 1.30% level and brings the increase for the year so far to a steep 41 basis points.
Analysts at BofA noted that 30-year bonds had returned -9.4% in the previous year, the worst start since 2013.
“Real assets surpass financial assets large in ’21, as cyclical, political, secular trends say higher inflation,” analysts said in a note. “Surging raw materials, energy backwards in fashion, materials in worldly breakouts.”
A COPPER PLATED RECORD
One of the stars has been copper, a key component in renewable technology, which last week rose 7.7% to a nine-year high. Even the broader LMEX base metal index rose 5.5% on the week.
Oil prices have joined the trip, aided by tightening supplies and freezing cold weather, giving Brent gains of 21% for the year so far. [O/R]
Early Monday, Brent crude futures rose 43 cents to $ 63.34 a barrel, while U.S. crude added 11 cents to $ 59.35.
All of this has been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars all sharply higher for the year so far.
Sterling has also reached a three-year high of over $ 1.4000, helped by one of the fastest vaccine rollouts in the world. British Prime Minister Boris Johnson is set to outline a path from COVID-19 lockdowns on Monday.
The US dollar index has been relatively volatile with downward pressure from the country’s growing twin deficit balanced by higher bond yields. The index was last at 90,341, not far from where it started the year at 90,260.
Rising government bond yields have helped the dollar gain some ground on the yen to 105.42 as the Bank of Jan actively limits interest rates at home.
The euro was stable at $ 1.2121, correlated between support at $ 1.2021 and resistance around $ 1.2169.
One commodity that is not doing so well is gold, partly due to rising bond yields and partly as investors questioning whether cryptocurrencies might be a better hedge against inflation.
The precious metal stood at $ 1,782 an ounce after starting the year at $ 1,896. Bitcoin rose 2.3% Monday to $ 57,275 after starting the year at $ 19,700.
(Editing Shri Navaratnam)