Asian stocks hold high levels, supported by bottomless stimulus

SYDNEY (Reuters) – Asian stocks held at record highs on Thursday as investors digested recent large gains, while bulls were supported by the promise of endless free money after a benign inflation reading US market and the Federal Reserve’s accommodative outlook.

The lack of liquidity added to the sluggishness, with the Chinese, Japanese, Korean and Taiwanese markets all on vacation.

The largest MSCI index of Asia-Pacific stocks outside of Japan added 0.1%, having already climbed for four sessions to surpass 10% so far this year.

Japan’s Nikkei was closed after hitting a 30-year high on Wednesday, while Australia’s main index was near an 11-month high.

With China turned off, there has been little reaction to news that the Biden administration will consider adding “new targeted restrictions” on certain exports of sensitive technology to the Asian giant and maintain tariffs for now.

Futures on the S&P 500 and NASDAQ were both flat, after hitting all-time highs on Wednesday. EUROSTOXX 50 futures and FTSE futures barely budged.

Still, the prospects for a more comprehensive stimulus were boosted strongly overnight by a surprisingly soft reading of core inflation in the United States, which fell to 1.4% in January.

Federal Reserve Chairman Jerome Powell has said he wants to see inflation reach 2% or more before even considering cutting back on the bank’s super-easy policies.

Notably, Powell pointed out that once the effects of the pandemic were wiped out, unemployment was closer to 10% than the 6.3% reported and therefore far from full employment.

As a result, Powell called for a “company-wide commitment” to reduce unemployment, which analysts saw as strong support for President Joe Biden, a $ 1.9 trillion stimulus package.

Indeed, Westpac economist Elliot Clarke estimated that more than $ 5 trillion in cumulative stimulus, worth 23% of GDP, would be needed to repair the damage caused by the pandemic.

“Historical experience provides a strong rationale for taking action against unwanted inflationary pressures only once they have been noticed, after full employment has been achieved,” he said.

“To this end, financial conditions are expected to remain strongly favorable to the US economy and global financial markets in 2021, and possibly until 2022.”

The mix of bottomless federal funds and a tame inflation report was a relief from the pains of the bond market, leaving 10-year yields at 1.12% from 1.20% earlier in the week.

This in turn weighed on the US dollar, which slipped to 90.395 on a basket of currencies and away from a 10-week high of 91.600 hit late last week.

The dollar eased to 104.57 yen, after a recent high of 105.76, while the euro rallied to $ 1.2122 from its low of $ 1.1950.

In the commodities markets, gold was sidelined at $ 1,838 an ounce as investors drove platinum to a six-year high on bets of greater demand from the auto sector. [GOL/]

Oil prices have taken a break, having seen the longest winning streak in two years against a backdrop of squeezing supply from producers and hope the vaccine rollout will lead to a recovery in demand. [O/R]

“Current price levels are healthier than the real market and are entirely dependent on supply reductions, as demand has yet to recover,” warned Bjornar Tonhaugen of Rystad Energy.

Brent futures fell 40 cents to $ 61.07, while US crude plunged 36 cents to $ 58.32 per barrel.