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SYDNEY – Asian stocks rallied on Monday thanks to gains in China, which also helped US equity futures cut initial losses, while rising Treasury yields pushed the dollar to a high. nearly three years against the Japanese yen.
Nasdaq futures and S&P 500 futures fell about 0.1%, but well above their initial lows. EUROSTOXX 50 futures fell 0.1% and FTSE futures were stable.
Oil prices extended their bull run, with gains across the energy complex stoking concerns about inflation.
“Bond yields continue to rise, inflation expectations are rising and monetary tightening in various forms is becoming more prevalent,” ANZ analysts said in a note.
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“The global chip shortage will extend into next year, adding further uncertainty to uneven recoveries,” they said. “Add in the power shortage and the economic outlook is materially more sober than the optimism that accompanied the early stages of the global recovery.”
However, a 1% rise in the Chinese blue chip index helped stabilize the mood and MSCI’s broader Asia-Pacific equity index outside of Japan added 0.7%.
The yen’s slide provided a positive boost to Japan’s Nikkei, which reversed initial losses to rise 1.7%, although Australia was still below 0.4%.
The US earnings season starts this week and is likely to bring stories of supply disruptions and rising costs. JPMorgan reports on Wednesday, followed by BofA, Morgan Stanley and Citigroup on Thursday, and Goldman on Friday.
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Attention will also turn to US retail sales and inflation data and the minutes of the last Federal Reserve meeting, which should confirm that a gradual reduction was discussed in November.
While Friday’s US payroll number disappointed, it was partly due to reopening problems in state and local education, while private sector employment was firmer.
In fact, with a lack of labor pushing the unemployment rate to 4.8%, investors were more concerned about the risk of wage inflation and Treasury bond yields rose sharply.
Yields on the 10-year notes were trading at 1.62%, after rising 15 basis points last week in the largest such increase since March.
The bonds were also sold in Asia and Europe, with short-term yields in Britain reaching their highest level since February 2020.
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BofA analysts warned that the global inflationary pulse would be exacerbated by energy costs with oil potentially topping $ 100 a barrel amid limited supply and strong reopening in demand.
The winners in such a scenario would be real assets, real estate, commodities, volatility, cash, and emerging markets, while bonds, credit, and stocks would be negatively affected.
BofA recommended commodities as a hedge, noting that resources accounted for between 20% and 25% of the major stock indices in the UK, Australia and Canada; 20% in emerging markets; 10% in the Eurozone and only 5% in the United States, China and Japan.
The dollar held on as US yields outperformed those of Germany and Japan, lifting it to its highest level since late 2018 against the yen at 112.41.
The euro held at $ 1.1572, having hit the lowest level since July last year at $ 1.1527 last week. The dollar index held at 94.158, just below the recent high of 94.504.
The firmer dollar and higher yields have weighed on gold, which does not offer a fixed return, and sidelined it at $ 1,760 an ounce.
Oil prices rose again after rising 4% last week to the highest level in nearly seven years.
Brent rose 91 cents to $ 83.30, while US crude rose $ 1.13 to $ 80.48 a barrel.
(Reporting by Wayne Cole; Edited by Christopher Cushing and Simon Cameron-Moore)
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