Asian stocks rebound as bond market calms down

By Wayne Cole

SYDNEY (Reuters) – Asian equities strengthened on Monday as a semblance of calm returned to bond markets after last week’s mad rush, as progress on the massive U.S. stimulus package supported the optimism about the global economy.

China’s official manufacturing PMI over the weekend missed forecasts, but investors are counting on better news from a series of U.S. data due this week, including the February payroll report.

News deliveries of the new Johnson & Johnson COVID-19 vaccine are also expected to begin on Tuesday.

The largest MSCI index of Asia-Pacific stocks outside of Japan edged up 0.1%, after losing 3.7% last Friday.

The Japanese Nikkei rose 2.0%, while NASDAQ futures rebounded 0.8% and S&P 500 futures rebounded 0.7%.

Yields on US 10-year notes fell to 1.40%, from last week’s high of 1.61%, although they still ended last week 11 basis points higher and were in up 50 basis points over the year so far.

“The Friday bond moves always appear to be a pause for the air, rather than the catalyst for a move towards calmer waters,” said Rodrigo Catril, a senior quarterback at NAB.

“Market participants remain nervous about the prospect of higher inflation as economies seek to reopen, aided by vaccine rollouts, high levels of savings as well as strong fiscal and monetary support.”

BofA analysts noted that the bear market for bonds is now one of the most severe on record with the annualized price return on 10-year U.S. government bonds down 29% from last August, Australia losing 19%, the United Kingdom 16% and Canada 10%. .

The rout owes a lot to expectations of faster growth in the United States, with the House passing President Joe Biden’s $ 1.9 trillion coronavirus relief package, sending it to the Senate.

BofA U.S. economist Michelle Meyer has raised her forecast for economic growth to 6.5% this year and 5% next, due to the likelihood of a bigger stimulus package, better news on the virus front and encouraging data.

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Cases of the virus have also declined by 72% since the peak on Jan.12, and hospitalizations follow closely behind, BofA added.

The rise in US yields combined with the general move to safety helped the dollar index rebound to 90.917 from a seven week low at 89.677.

Early Monday, the euro held steady at $ 1.2086, from a high of $ 1.2242 last week, while the dollar held near a six-month high against the yen at 106.50.

“Riskier” currencies and those exposed to commodities rebounded somewhat after taking a beating late last week, with Australian and Canadian dollars rising and emerging markets from Brazil to Turkey appearing more stable.

Unproductive gold was still fueling losses after hitting an eight-month low on Friday en route to its worst month since November 2016. It was last at $ 1,737 an ounce, just above a low of approximately $ 1,716.

Oil prices extended their gains ahead of an OPEC meeting this week where supply could be increased. Brent gained 4.8% last week and WTI 3.8%, while both were about 20% higher from February as a whole.

Brent was the latest up 92 cents to $ 65.34, while US crude rose 97 cents to $ 62.47 per barrel.

(Edited by Shri Navaratnam)