Global equity markets hit record high as bond yields ease

by Jonathan Adams
Global equity

Most Asia-Pacific share indexes followed Wall Street higher, with Hang Seng leading gains in the region

Global equity markets rose to a fresh record high on Wednesday as bond yields eased after data showed U.S. inflation was not rising in a big way.

Most Asia-Pacific (APAC) share indexes followed Wall Street higher, with Hong Kong’s Hang Seng leading gains in the region, while benchmark U.S. Treasury yields continued their decline, marking a fresh three-week low.

Japan bucked the trend, with the Nikkei dropping 0.4% as rising Covid cases raised doubts about an economic reopening with 100 days to go until Tokyo Olympics.

The U.S. consumer price index advanced 0.6%, the biggest rise since August 2012, as rising vaccinations and fiscal stimulus unleashed pent-up demand. But the data is unlikely to change Federal Reserve Chair Jerome Powell’s view that higher inflation in coming months will be transitory.

Powell is scheduled to speak later in the day at the Economic Club of Washington.

The market clearly braced for higher CPI readings, Westpac strategists wrote in a client note.

They said Tuesday’s result was “clearly being interpreted within the context of the Fed’s commitment to look through ‘transitory’ inflation impulses.”

For bond markets, the question is whether the benchmark yield can break below 1.6% from as low as 1.611% on Wednesday, they wrote. That has been an important technical level, which if broken could see a quick move to 1.5%.

The 10-year U.S. Treasury yield had surged from the start of the year to a 14-month high of 1.776% on March 30 on bets that massive fiscal stimulus would speed up a U.S. recovery, stoking faster inflation than Fed policymakers anticipate.

But yields have eased this month, in part due to the Fed’s insistence that labour market slack will prevent the economy from overheating.

A spate of strong auction results, including of 30-year bonds on Tuesday, has also helped to keep yields in check.

MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.6%. Hong Kong’s Hang Seng rallied 1.3%, while China’s blue-chip index climbed 0.7%.

MSCI’s gauge of equity performance in 50 countries added 0.15%, extending its all-time peak.

The drop in bond yields lifted U.S. tech stocks overnight, including Apple Inc, Microsoft Corp and Amazon.com Inc, the top three holdings of the global benchmark.

The S&P 500 advanced 0.33% as it also set intra-day and record closing highs, while the Nasdaq Composite gained 1.05%. The Dow Jones Industrial Average dropped 0.2%.



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