MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.2%, Nikkei regained 1.0% and South Korea 0.4%, but Chinese blue chips shed 1.2%
Share markets in Asia edged up on Monday as expectations for faster economic growth and inflation ravaged bonds and boosted commodities, though rising real yields were making equity valuations appear more stretched in comparison.
MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.2%, after dropping from a record high last week as the jump in U.S. bond yields unsettled investors.
Japan’s Nikkei regained 1.0% and South Korea 0.4%, but Chinese blue chips shed 1.2%.
S&P 500 and EUROSTOXX 50 futures were both around flat, while FTSE futures declined 0.6%.
Bonds have been bruised by the prospect of a stronger economic recovery and yet greater borrowing as President Joe Biden’s $1.9 trillion stimulus package progresses.
Yield curves have continued to steepen, as COVID infection rates decline further, reopening plans are discussed and a large U.S. fiscal stimulus package looks likely, said Christian Keller, Barclays, head of economics research.
This in principle signals a better medium-term growth outlook for the U.S. and beyond, as other core yields curves are moving in the same direction, he added. Meanwhile, central banks seem set to look through this year’s inflation increase, keeping the curves’ front end anchored.
Federal Reserve Chair Jerome Powell delivers his semi-annual testimony before Congress this week and is likely to reiterate a commitment to keeping policy super easy for as long as required to drive inflation higher. Central Bank President Christine Lagarde is also expected to be dovish in a speech later Monday.
Yields on 10-year Treasury notes have already reached 1.38%, breaking the psychological 1.30% level and bringing the rise for the year so far to 43 basis points.
Analysts at BofA noted 30-year bonds had returned -9.4% in the year to date, the worst since 2013.
Real assets are outperforming financial assets big in ’21 as cyclical, political, secular trends say higher inflation, the analysts said in a note. Surging commodities, energy laggards in vogue, materials in secular breakouts.
