Why are Asian markets showing modest gains today?

Question

Accepted Answer

Asian Markets See Modest Gains Amidst Global Growth and Inflation Expectations

Asian share markets experienced a slight increase today, driven by global expectations of accelerated economic growth and inflation. This environment has led to a decline in bond values and a surge in commodity prices. While these factors generally support market sentiment, the concurrent rise in real yields presents a counterbalancing force by making equity valuations appear more stretched. The MSCI's broadest index of Asia-Pacific shares outside Japan rose by 0.1 per cent, with Japan's Nikkei index recovering 1.0 per cent and South Korea's market adding 0.4 per cent.
Bond Market Weakness and Stimulus Impact

The bond market has been significantly impacted by the anticipation of a robust economic recovery and increased government borrowing, particularly in light of President Joe Biden's US$1.9 trillion stimulus package. This prospect has contributed to a steepening of yield curves, signalling a more optimistic medium-term growth outlook for the United States and globally. Despite potential inflationary pressures this year, central banks appear inclined to maintain accommodative policies, keeping the front end of yield curves anchored. Federal Reserve Chair Jerome Powell is expected to reaffirm the commitment to maintaining easy monetary policy to support inflation, while European Central Bank President Christine Lagarde is also anticipated to adopt a dovish stance. Yields on 10-year Treasury notes have risen to 1.36 per cent, marking a substantial 41 basis point increase for the year.
Rise of Real Assets and Commodity Strength

In 2021, real assets have notably outperformed financial assets, a trend attributed to cyclical, political, and secular forces suggesting higher inflation. Commodities, energy, and materials have come into favour, with copper prices reaching a nine-year peak after a 7.7 per cent surge last week, and the broader LMEX base metal index climbing 5.5 per cent over the same period. Oil prices have also seen an upward trajectory due to tightening supplies and adverse weather conditions, with Brent crude futures advancing 21 per cent year-to-date. This commodity strength has bolstered commodity-linked currencies, including the Canadian, Australian, and New Zealand dollars, which have experienced significant gains for the year.
Currency Movements and Gold's Decline

Sterling has reached a three-year high above US$1.4000, supported by one of the world's most efficient vaccine rollouts. The US dollar index has remained relatively range-bound, with downward pressure from the nation's widening twin deficits being counterbalanced by rising bond yields. The dollar has seen some appreciation against the yen, reaching 105.42, partly because the Bank of Japan is actively managing domestic yields. The euro has held steady at US$1.2121. In contrast, gold prices have declined, influenced by rising bond yields and investor consideration of cryptocurrencies as a potential inflation hedge. Bitcoin, however, has seen substantial gains, rising 2.3 per cent today to US$57,275, having started the year at US$19,700.

Reading history

Hide →

This history is cleared when the page is closed.

Why are Asian markets showing modest gains today?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends