Stocks make cautious gains as bond yields and resources rise

SYDNEY (Reuters) – Asian stock markets edged up on Monday as expectations of faster economic growth and global inflation beat bonds and boosted commodities, although rising real yields returned stock valuations strained in comparison.

The largest MSCI index of Asia-Pacific stocks outside of Japan rose 0.2%, after slipping from a record high last week as rising US bond yields confused investors.

Japan’s Nikkei recovered 1.0% and South Korea 0.4%, but Chinese blue chips lost 1.2%.

S&P 500 and EUROSTOXX 50 futures both wavered flat, while FTSE futures fell 0.6%.

Bonds have been shattered by the prospect of a stronger economic recovery and even bigger borrowing as President Joe Biden’s $ 1.9 trillion stimulus package progresses.

“Yield curves have continued to steepen, as COVID infection rates decline further, plans to reopen are discussed, and a broad US fiscal stimulus package looks likely,” said Christian Keller, head of research economical at Barclays.

“This in principle indicates better medium-term growth prospects for the US and beyond, as other core yield curves move in the same direction,” he added. “Meanwhile, central banks appear poised to examine this year’s rise in inflation, keeping the curve front-end anchored.”

Federal Reserve Chairman Jerome Powell is giving his biannual testimony to Congress this week and will likely reaffirm his commitment to maintaining extremely easy politics for as long as it takes to push inflation up.

European Central Bank President Christine Lagarde is also expected to appear conciliatory in a speech later Monday.

Yields on 10-year Treasuries have already reached 1.38%, breaking the psychological level of 1.30% and taking the year’s rise so far to 43 basis points.

BofA analysts noted that 30-year bonds had returned -9.4% year-to-date, the worst start since 2013.

“Real assets far outweigh financial assets in 21, as cyclical, political and secular trends point to higher inflation,” the analysts said in a note. “Raw materials in full swing, the energy laggards in vogue, materials in secular ruptures.”

COPPER RECOVERY

One of the stars was copper, a key part of renewable technology, which climbed 7.7% last week to a nine-year high. Even the larger LMEX base metals index climbed 5.5% on the week.

Oil prices followed the race, helped by tight supplies and freezing weather, giving Brent 22% gains for the year so far. [O/R]

Early Monday, Brent futures rose 50 cents to $ 63.41 a barrel, while U.S. crude added 45 cents to $ 59.69,

This has all been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars all markedly higher for the year so far.

Sterling hit a three-year high of $ 1.4050, thanks to one of the fastest vaccine deployments in the world. British Prime Minister Boris Johnson is to sketch a path from COVID-19 lockdowns on Monday.

The US dollar index was relatively limited, with downward pressure from the country’s growing double deficit offset by higher bond yields. The index was the last at 90.341, not far from where it started the year at 90.260.

The rise in Treasury bill yields helped the dollar gain somewhat against the yen at 105.60, as the Bank of Japan actively restricts yields domestically.

The euro was flat at $ 1.2128, stuck between support at $ 1.2021 and resistance around $ 1.2169.

Gold is a commodity that is not doing so well, partly because of rising bond yields and partly because investors are wondering if cryptocurrencies could be a better hedge against inflation. [GOL/]

The precious metal stood at $ 1,786 an ounce, having started the year at $ 1,896. Bitcoin was down 1.8% on Monday at $ 56,403, but started the year at $ 19,700.