Overnight: Asia pauses for thought while US markets got their mojo back
Asian markets appear to be taking a breather this morning, having led the global equity recovery yesterday.
US markets found their mojo again overnight, with a day of calm on bond markets greenlighting equities to leap higher on the vaccine recovery optimism that characterised the Asian session earlier in the day.
Fed Governor Barkin, speaking overnight UK time, said that he was not concerned by an increase in Treasury yields, with his attention much more focused on the slack in the labour market.
More Fed speakers are expected to convey a similar message later on this week.
Along with the progress of the Biden stimulus package, as well as the J&J Covid-19 vaccine approval, with Novavax seemingly not far behind, “it might be a bit premature to put those inflation fears back in the box,” said Jeffrey Halley, senior market analyst for the Asia Pacific at Oanda, this morning.
“Even though the inflation itself is the good cholesterol type, and not the artery hardening wage/price stagnation type, that all means that we have probably not seen the last of the bond tantrum potentially.”
“It will be interesting to see how other asset classes, notably equities, survive that stress test,” Halley told City PM from Jakarta this morning.
Asian data released earlier today have not offered much insight either. All-in-all, today’s data prints are sending mixed signals, he continued.
“On the one hand, manufacturing and exports remain strong, but there are hints that momentum may be slowing. The honest answer is it could go either way from here, but we will probably need to wait until next month’s data to draw a conclusion,” Halley added.
Across the pond
It is a different situation in the US, however, where the picture paints a rapidly recovering economy on all fronts, which will shortly be juiced by another $1.9 trillion fiscal stimulus package.
“Are inflationary pressures ebbing? I don’t think so, and if this Friday’s Non-Farm Payrolls outperform, equity markets may find themselves stress-tested again,” Halley explained.
If US yields spike again, central banks – from Europe to Australia to Japan – may find themselves scrambling to contain the fallout in their bond markets, he continued.
“We may have to get used to more two-way price action going forward, a well overdue and welcome development.”
US markets played catchup to the Asian rally, posting very impressive results overnight. The S&P 500 rose by 2.38 per cent, the Nasdaq leapt 3.01 per cent, and the Dow Jones rallied by 1.95 per cent.
Some profit-taking is evident in Asia, though, with the futures on all three indexes lower by between 0.20 per cent and 0.30 per cent.
“Having led the world higher yesterday, by virtue of being the first region to open, Asian markets are only recording modest gains today, not helped by the US index futures also easing slightly,” Halley said.