Tokyo, Feb 10 (BNA): The rally in global tech-backed stocks in Asian trade slowed on Thursday as investors took a more cautious stance amid uncertainty over inflation expectations and interest rates.
However, global bond yields continued to slip from multi-year highs, and the dollar eased ahead of a closely watched US inflation report due later in the day that should provide fresh clues to the pace of US interest rate hikes.
Crude oil resumed its bullish trend as a significant drop in US inventories confirmed the continuation of tightness in the market.
Japan’s Nikkei started the day nearly 1% higher before starting a steady slide that brought it close to negative territory. It later rebounded to gain 0.33%.
Meanwhile, Chinese blue chips sank 0.52% and Hong Kong’s Hang Seng Index sank 0.31%.
MSCI’s broadest index of Asia Pacific shares gained 0.10%.
“We don’t know the number of rate hikes in the US this year, and I don’t think the Fed knows either, and that makes markets a little nervous, to say the least,” said Kyle Rhoda. Market Analyst at IG Australia.
“Any kind of data surprise is going to inflame that tension, and that leads to the volatility that we’re seeing in the markets.”
On Wednesday, Big Tech led Wall Street higher, with the Nasdaq up 2.1% and the S&P 500 ending 1.45% higher, according to Reuters.
Despite this, US futures pointed to a decline, noting a 0.28% decline for the Nasdaq and a 0.23% decline for the S&P.
Helped to feel the sentiment overnight is declining long-term bond yields. The US 10-year Treasury yield fell to 1.9285% in Tokyo on Thursday from a 2-1/2 high on Tuesday. Its German counterpart has fallen from a three-year high.
“It was a more positive session for global bonds, as European bond yields took a breather from their recent seemingly relentless rally,” Damian McCullough, head of interest rate strategy at Westpac, wrote in a client note.
“However, global bond yields have entered a bearish phase and investors are likely to demand a higher investment premium given inflation and policy risks…so we remain better tactical sellers.”
The more hawkish tone from both the European Central Bank and the Federal Reserve last week surprised the markets, sending yields higher.
The Australian benchmark 10-year yield fell to 2.086% on Thursday from 2.157% in the previous session, its highest level in nearly three years.
Japan’s benchmark yield held at a six-year high of 0.215% amid speculation that further tightening of tight monetary policy globally could prompt the Bank of Japan to take some action.
Last Thursday, European Central Bank President Christine Lagarde sent interest rate hike bets high by not repeating that a rate hike in 2022 is highly unlikely, although subsequent comments from bank officials suggest no significant monetary tightening is needed.
The Fed is widely expected to start raising interest rates at its March meeting although the pace of tightening is unclear.
Money markets are certain to raise the Fed by at least a quarter of a point next month, and are giving odds of a half-point increase.
Data later Thursday is expected to show US consumer inflation is racing at a 7% annual surplus, a level reminiscent of the inflation shocks of the 1970s and 1980s.
Currencies were largely in a wait mode prior to that release, with the dollar index flat at 95.581 after bouncing off a two-week low of 95.136 on Friday.
One euro bought 1.14175 dollars and the yen was trading at 115.49 per dollar.
The combination of a weak dollar and bond yields added some shine to gold, which settled near a two-week high, finally trading at around $1,834 an ounce.
US West Texas Intermediate crude futures rose 15 cents to $89.81 a barrel, while Brent crude futures settled at $91.53 a barrel.
HF