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SYDNEY (Reuters) – Asian stocks took a break on Monday as Treasuries yields hit 10-month highs as “trillions” in new U.S. fiscal stimulus packages were due to be unveiled this week, fueling a global reflation trade.
Investors were keeping a cautious eye on U.S. policy as pressure increased to impeach President Donald Trump, even though signs were that a full trial could be in some time.
The MSCI’s largest Asia-Pacific stock index outside of Japan fell 0.2%, after jumping 5% last week to record highs. Japan’s Nikkei was on vacation after closing at a 30-year high on Friday.
South Korea was flat after an early jump, and Chinese blue chips strengthened 0.7%.
“Asia went through the second global crisis of this millennium with its credentials,” said ANZ chief economist Richard Yetsenga.
“Asia’s growth is stronger, with essentially better demographics and debt levels than advanced economies.”
He noted that a fortuitous shift between the semiconductor and energy sectors highlighted Asia’s success, given that the region produced around 45% of the world’s semiconductors.
“For the first time, the market capitalization of the global semiconductor industry has overtaken energy,” he said. “At the time of the last crisis, 12 years ago, the energy sector was more than five times the size.”
Futures on the S&P 500 slipped 0.6% from all-time highs, after gaining 1.8% last week. EUROSTOXX 50 futures contracts fell 0.1% and FTSE futures remained stable.
Longer-term Treasuries yields were at their highest since March, after Friday’s job weakness only stirred speculation on more US fiscal stimulus now that Democrats are in control of the government.
President-elect Joe Biden is due to announce plans for “trillions” in new relief bills this week, much of which will be funded by increased borrowing.
At the same time, the Federal Reserve seems content to put the burden on fiscal policy with Vice President Richard Clarida saying there would be no change anytime soon for the $ 120 billion in debt the Fed buys each. month.
With the Fed reluctant to buy longer-dated bonds, yields on 10-year Treasuries jumped nearly 20 basis points last week to 1.12%, the biggest weekly increase since June.
Treasury futures lost 3 more ticks early Monday.
Mark Cabana, of BofA, has warned that the stimulus could put pressure on the dollar and cause the Fed to fall later this year.
“An early collapse of the Fed creates upside risks to our 10-year cash target of 1.5% at year-end and supports our longer-term expectations of neutral rates towards 3%,” he said in a note to customers.
The poor payroll report will increase interest in US data on inflation, retail sales and consumer sentiment.
Profits will also be the focus as JP Morgan, Citigroup and Wells Fargo are among the first companies to release fourth quarter results on January 15.
The rate hike in turn provided some support for the battered dollar to the downside, which had risen slightly to 90.439 against a basket of currencies from last week’s low of 89.206.
The euro fell back to $ 1.2170 after a recent high of $ 1.2349, breaking support around $ 1.2190. The dollar also strengthened to 104.18 yen after a low of 102.57 reached last week.
The sudden surge in bond yields undermined gold, which bears no interest, and the metal fell 1.1% to $ 1,828 an ounce from its recent high of $ 1,959. [GOL/]
Oil prices triggered profit-taking after hitting their highest level in nearly a year on Friday, gaining 8% the week following Saudi Arabia’s pledge to cut production. [O/R]
Brent futures plunged 48 cents to $ 55.51, while US crude futures fell 28 cents to $ 51.96 a barrel.
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