Asian markets rose Thursday ahead of US inflation data and a European Central Bank meeting, while traders also tracked China-US relations after Joe Biden dropped a Trump-era bid to ban TikTok and WeChat.
With the global economy seeing a blockbuster recovery from last year’s virus-induced collapse, investors are in a broadly buoyant mood with expectations that equities will continue higher thanks to reopenings, vaccinations, government stimulus and vast central bank support. However, that optimism is being dampened by fears the rebound is causing a spike in inflation that will force banks — particularly the Federal Reserve — to wind back their ultra-loose programmes sooner than previously flagged, despite constant reassurances they will not. The release Thursday of May’s consumer price index is now crucial, with warnings that a big miss to the upside of the 4.7 percent forecast would ramp up expectations of policy tightening. Still, observers said there seemed to be a little more calm on trading floors of late as investors accept the rises would be temporary owing to a lower base of comparison with last year and soaring commodity prices.
The yield on 10-year US Treasuries — a key gauge of future interest rates — dipped again Wednesday. “Even if inflation comes out a little higher than… expectations, the Fed isn’t going to change its path,” Esty Dwek, at Natixis Investment Managers, told Bloomberg TV. “There’s a lot of wait-and-see going on and really just thinking it would take a lot to really surprise markets.” The European Central Bank is expected to hold its easy money policy in place for now, though its post-meeting statement will be pored over for its plans as the recovery develops. “It will be hard to avoid taper talk so how the ECB responds to questions around tapering will be of central importance to the market’s expectations and the euro,” said Neil Wilson of Markets.com.
– China-US ties in view –
After another weak lead from Wall Street, Asia pressed higher. Tokyo, Sydney, Singapore, Seoul, Taipei, Mumbai and Jakarta were all in positive territory. Hong Kong pared earlier gains to end flat while Wellington and Manila were slightly lower. London edged up in morning trade but Paris and Frankfurt dipped. “The bond market is convinced inflation will be transitory and that the Fed won’t budge this year over its asset purchases,” said OANDA’s Edward Moya. The “inflation data won’t change the Fed’s mind over inflation, but a hot reading could help put a tentative floor on Treasury yields”.
Traders were keeping tabs on relations between Beijing and Washington in the wake of Biden’s decision to revoke Donald Trump’s executive order against Chinese-owned mobile apps TikTok and WeChat. The former president had signed the measure saying they posed national security risks and had sought to force the sale of TikTok to US investors, worsening already frosty ties between the superpowers. But the Biden administration said it would carry out a “criteria-based decision framework and rigorous, evidence-based analysis to address the risks” from internet applications controlled by foreign entities.
Meanwhile, commerce officials from the two countries held discussions on trade and investment links. Chinese Commerce Minister Wang Wentao and his counterpart Gina Raimondo “agreed to promote the healthy development of pragmatic cooperation in trade and investment”, during a phone call Thursday. The talks come after Vice Premier Liu He held discussions with US Trade Representative Katherine Tai and, later, Treasury Secretary Janet Yellen. Markets are also preparing for this weekend’s summit of the Group of Seven wealthy nations, which is taking place in England and marks Biden’s first foreign trip as US president.
– Key figures at 0810 GMT –
Tokyo – Nikkei 225: UP 0.3 percent at 28,958.56 (close)
Hong Kong – Hang Seng Index: FLAT at 28,738.88 (close)
Shanghai – Composite: UP 0.5 percent at 6,610.86 (close)
London – FTSE 100: UP 0.3 percent at 7,101.44
Euro/dollar: DOWN at $1.2159 from $1.2177 at 2030 GMT
Pound/dollar: DOWN at $1.4089 from $1.4112
Euro/pound: UP at 86.31 pence from 86.29 pence
Dollar/yen: DOWN at 109.55 yen from 109.63 yen
West Texas Intermediate: DOWN 0.3 percent at $69.72 per barrel
Brent North Sea crude: DOWN 0.3 percent at $71.98 per barrel
New York – Dow: DOWN 0.4 percent at 34,447.14 (close)