HONG KONG – Optimism over the economic recovery helped push Asian markets higher today following another record on Wall Street, with focus on the Federal Reserve’s much-anticipated policy meeting this week.
News that several European countries have stopped administering the AstraZeneca Covid-19 vaccine on safety fears, dealing a blow to the continent’s already stuttering inoculation programme, appears to have little impact on sentiment.
As the United States vaccine programme kicks in and Americans begin to get their government cash handouts as part of President Joe Biden’s mega stimulus, investors are betting that months of pent-up spending will soon be let loose on the world’s top economy, a key driver of global growth.
Expectations for a surge in activity in the second half of the year, backed by huge government rescue packages and central bank largesse, have helped power world markets to record or multi-year highs.
However, the rocket-powered recovery is a double-edged sword as investors grow increasingly worried it will fan inflation and force national banks to wind down the ultra-loose monetary policies that have helped send equities higher.
US benchmark 10-year Treasury yields – a guide to future interest rates – have risen to a one-year high in recent weeks.
Still, for now, the positive economic benefits are winning the tug of war with inflation fears.
Wall Street’s three main indexes chalked up healthy gains, with the Dow and S&P 500 hitting new all-time highs, and even the Nasdaq – which has suffered from a shift out of tech stocks over the past month – enjoying a healthy run-up.
‘The party has started’
And, Asia continues the run, with Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Wellington, Taipei and Manila all up, though Singapore dipped slightly.
“On the heels of the reopening optimism, stocks again become a flat-out buy as tailwinds from an expected stimulus-induced shopping bonanza will find their way into higher corporate profits and higher earnings per share,” said Axi strategist Stephen Innes.
“Markets continue to move based on the expectation of a post-virus boom. At least, that is the dominant narrative right now. The economy, boosted by another round of stimulus, will surge once the virus is under control and things return to normal.”
Referring to Biden’s hope that Americans will be able to celebrate Independence Day together in July, Innes said: “I have some news for the Biden administration; the party has already started.”
The Fed’s latest two-day policy meeting, which begins today, is front and centre of investors’ minds as they look for its response to the rally in US bond yields that has rattled trading floors.
However, the general consensus is that policymakers will maintain their vast bond-buying scheme and keep rates at record lows until 2023.
Fed boss Jerome Powell “will rely on the short-term risks to the outlook to defend his ultra-easy monetary stance”, said Oanda’s Edward Moya.
“Powell will likely replay his best hits when discussing inflation, noting that price increases later in the year won’t be large or persistent. The summertime is when inflation could rear its ugly head, so Powell should be able to push back any concerns until then.”
Key figures around 0320 GMT
Tokyo – Nikkei 225: UP 0.6% at 29,956.82 (break)
Hong Kong – Hang Seng: UP 0.5% at 28,985.94
Shanghai – Composite: UP 0.2% at 3,426.71
Euro/dollar: DOWN at US$1.1927 from US$1.1929 at 2035 GMT
Pound/dollar: DOWN at US$1.3870 from US$1.3897
Euro/pound: UP at 86.00 pence from 85.93 pence
Dollar/yen: UP at ¥109.21 from ¥109.13
West Texas Intermediate: DOWN 1.1% at US$64.67 per barrel
Brent North Sea crude: DOWN 1.2% at US$68.07 per barrel
New York – Dow: UP 0.5% at 32,953.46 (close)
London – FTSE 100: DOWN 0.2% at 6,749.70 (close). – AFP, March 16, 2021
