Treasuries Trim Gains; China Weighs on Asia Stocks: Markets Wrap
- Chinese equities under pressure as Xi brings little comfort
- Tesla shares gain post-market after profit beats estimates
Asian stocks traded mixed and U.S. futures climbed Thursday with investors seeking clues on Chinese policy support and pondering a burgeoning debate around whether inflation is peaking. Treasuries pared a rally.
Equities rose in Japan. They fell in Hong Kong and China where an address by President Xi Jinping failed to soothe investors pining for more measures to support growth. S&P 500 and Nasdaq 100 futures advanced after positive earnings from Tesla Inc. and United Airlines Holdings Inc.
Rate markets underwent a sharp repricing Wednesday, sending long bond yields sinking. Investors such as Bank of America Corp. and Nomura Asset Management said this is a buying opportunity after the recent rout. Ten-year yields trimmed a steep retreat, with central bank stimulus withdrawal looming large. The dollar pared a slide and the yen resumed a decline.
Chinese tech stocks fell for a third consecutive day, weighed by shares linked to electric vehicle production as lockdowns on the mainland disrupt logistics. Investors have so far been disappointed at Chinese attempts to counter the economic impact of lockdowns.
While the peak-inflation debate is intensifying, it’s unlikely to derail global central banks from their tightening path as commodity shortages from the war in Ukraine keep prices elevated. New Zealand inflation accelerated in the first quarter to the fastest pace in 32 years, validating the central bank’s pursuit of an aggressive tightening cycle.
In an ominous sign for risk assets, U.S. 10-year real yields briefly turned positive on Wednesday for the first time since March 2020 as traders added to bets on an aggressive Fed hiking cycle.
“There are still some risks right now,” Ray Sharma-Ong, abrdn Multi-Asset Solutions investment director, Asia Pacific, said on Bloomberg Television. “It’s not over. We do still see some risk of 10-year yields pushing higher on the back of this uncertainty,” as investors await details on the Fed’s timeline for shrinking its balance sheet.
The U.S. economy grew at a moderate pace through mid-April, but rising prices and geopolitical developments created uncertainty and clouded the outlook for future growth, the Fed said in its Beige Book survey released Wednesday.
“Strong demand allowed firms to pass through input cost increases in consumers,” Carol Kong, a strategist at Commonwealth Bank of Australia, said in a note. “The anecdotal evidence supports our view the FOMC is well behind the curve and needs to tighten policy aggressively.”
Investors will be looking for any clues on central bankers’ thinking on rates and inflation when Fed Chair Jerome Powell and European Central Bank President Christine Lagarde discuss the global economy at an International Monetary Fund event Thursday.
China’s Xi, in opening remarks of the Boao Forum for Asia via video link, defended the lockdowns to fighting the pandemic, even as he sought to reassure the world that the country was still committed to opening its economy.
Elsewhere, finance ministers from the Group of Seven nations said they are seeking to isolate Russia from the global economy, while Washington imposed fresh sanctions, including on a cryptocurrency miner. And Russia was ruled in potential default of two bonds.
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