Dollar, US yields gain, Asian stocks dragged down by Delta worries

HONG KONG, Aug.11 (Reuters) – The dollar and US yields extended their gains in Asia on Wednesday, boosted by lower talks, while Asian stocks traded sideways amid fears about the spread of the coronavirus despite a record close on Wall Street.

The dollar index hit its highest level since mid-July, gaining against the yen, while the euro approached year-round lows against the greenback.

The largest MSCI Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) rose 0.08% in Asian trading, Chinese bluechips (.CSI300) down 0.38%, and Korean KOSPI (.KS11) down 0.37%.

Improving US economic data and a more hawkish tone from Federal Reserve officials led markets to expect the central bank to start cutting back on asset purchases later this year, pushing higher yields and supporting the dollar.

But the move has been well signaled, which means a repeat of the so-called ‘tantrum’ of 2013 that rocked markets when the Fed began to curb its quantitative easing program, is unlikely, said Ray Farris, Director of Investments for South Asia, Credit Suisse.

“In Asia, there is a bit of concern about the reduction, but there is a growing understanding that we are unlikely to have a tantrum,” said Farris.

“But there are a lot more concerns about Delta due to its impact on many Asian economies where vaccination rates are lower,” he said.

The Delta variant of the new coronavirus is spreading rapidly in many Asian countries, raising fears of local travel restrictions, hampering economic recovery.

Australia was a rare glimmer of hope, with the local index (.AXJO) gaining 0.61%, helped by news of a record share buyback by the country’s largest bank, Commonwealth Bank of Australia (CBA.AX), with its annual results. Read more

The Japanese Nikkei (.N225) gained 0.57%.

The dollar was supported by higher and shorter-term T-bill yields that hit their highest levels since mid-July, with benchmark 10-year T-bill yields peaking at 1, 3610% over five weeks.

The Dow (.DJI) and S&P 500 (.SPX) closed at record highs as economically sensitive value stocks gained as the US Senate passed a two-party infrastructure package of 1 Trillion dollars, which now passes through the House of Representatives. Read more

The infrastructure package could provide the country’s biggest investment in decades in roads, bridges, airports and waterways.

Elsewhere, the stronger dollar and higher bond yields weighed on gold, with the spot price falling 0.2%. Higher interest rates generally hurt non-interest bearing gold.

Oil held onto its gains in Asian trade, rising 2% on Tuesday, following signs of increasing demand for fuel in the United States.

US crude rose 0.01%, Brent crude remained stable.

Reporting by Alun John; edited by Richard Pullin

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