Asia Stocks to Follow the US Rebound; Treasuries to Fall

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Asian markets appear ready to track a bounce in US equities as traders assess the economic recovery’s endurance in the face of increased inflation fueled by rising energy costs. Treasury yields increased, as the dollar maintained its gains.

Japan and Hong Kong futures climbed Wednesday, while Australia opened higher. Contracts in the United States remained stable as bargain-hunting for technology companies that bore the brunt of a recent selloff boosted the S&P 500 and the Nasdaq 100.

The yield on the 10-year Treasury note surged beyond 1.50 percent. The highest US natural gas prices in 12 years underscored the inflationary threat posed by energy prices, but service-sector activity expanded faster than predicted, bolstering the case for the Federal Reserve to reduce its bond-buying programme. Traders are looking forward to the release of labour market statistics later this week for additional hints regarding the Fed’s policy outlook.

Concerns over China’s highly leveraged property sector and a broad regulatory crackdown on private companies continue to loom large in the background. On Tuesday, Man Group, Soros Fund Management, and Elliott Management executives expressed concern about the outlook for Chinese stocks. The markets throughout the country are closed for the holiday and will reopen on Friday.

Global market volatility has increased as investors brace for a delayed but still solid economic rebound following the pandemic and for gradual monetary policy tightening to limit inflationary pressures. The concern is exacerbated by the United States’ political impasse over the nation’s debt ceiling and President Joe Biden’s broader economic programme.

“The energy price surge has complicated the short-term macro outlook,” Chris Iggo, chief investment officer for core investments at AXA Investment Managers, wrote in a note. “Macroeconomic and fundamental conditions have deteriorated recently, so let’s see whether liquidity is sufficient to support current market levels.”

The 10-year breakeven rate in the United States – a barometer for investors’ expectations for annual inflation over the next decade – has risen to its highest level since June. Protracted supply chain interruptions and skyrocketing raw material prices are exacerbating fears of increased expenses.

Crude oil’s recovery from a seven-year high has been prolonged. Elsewhere, Bitcoin continued its ascent beyond the $51,000 level.

Published by Zack Baharum

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