Market Close Mar 31

Bourses weaken as eyes turn to Biden plan

Stock fall across the region; US president expected to announce another multi trillion-dollar stimulus package; inflation concern still dogs investors; Indian shares drop on World Bank GDP forecast

by Mark McCord and Danny McCord
Bourses weaken as eyes turn to Biden plan
The Bombay Stock Exchange. Photo: Wikicommons

(ATF) Asian markets slipped Wednesday following a soft lead from Wall Street, while focus turned to the US where President Joe Biden is expected to unveil his latest multi-trillion-dollar recovery plan for the world's top economy.

While regional equities have enjoyed a run of buying this week thanks to optimism about the global economic recovery and vaccinations, trading floors remain worried that the rebound will stoke inflation and in turn force central banks to hike interest rates.

The issue has now reached a point where dealers are spooked by good news, with the possibility of more government spending forcing benchmark 10-year US Treasury yields – a gauge of future borrowing costs – to almost double since the turn of the year.

Yields focus

Eyes will be on yields later in the day when Biden is due to announce an infrastructure programme that some reports say could run as high as $4 trillion, which would require more borrowing and likely tax hikes.

Axi strategist Stephen Innes also pointed to data Wednesday showing China's factory activity in March grew much more than expected, reinforcing the view that the Asian powerhouse is well on the road to recovery.

"One would normally expect risk assets to find some legs as China economic data remains steady with the non-manufacturing PMI data exceeding," Innes said in a note.

"But we are in such an odd policy paradox right now, globally. Stronger data in China feeds into the (People's Bank of China) normalising mantra, while robust data in the States directly leads to higher yields because data beats flame the fires of inflation. You are damned if you do, and you are damned if you don't, so choose your stocks wisely."

Archegos fallout

Hong Kong and Shanghai were both lower, and Tokyo was also dragged by financials after it emerged that Mitsubishi UFJ Financial was among the lenders to take a hit from the collapse at Wall Street fund Archegos.

There were also losses in Singapore, Seoul, Mumbai, Taipei, Manila and Jakarta, but Sydney, Bangkok and Wellington rose.

India’s Nifty 50 Index fell 1% after the World Bank said the nation’s economy may grow less that previously forecast. The international institution said estimates of 10.1% expansion could actually be in the range of 7.5% and 12.5%. Its would stabilise at 6% to 7% in the medium term.

“It is not normal to talk about these wide ranges in the forecast,” said Hans Timmer, Chief Economist for the World Bank’s South Asia region. “The reason is that we are really in unprecedented circumstances.” 

London, Paris and Frankfurt all fell in early trade.

The dollar held gains at a one-year high against the yen as the expected surge in economic growth sees money move out of the safe-haven Japanese unit.

Markets strategist Louis Navellier said markets were growing increasingly fearful that the record low rates and ultra-loose monetary policies that have helped fan a year-long rally were nearing an end.

"Because investors have been so well rewarded in a low-growth, low-rate, low-inflation economy for so long, the notion of this paradigm undergoing such a seismic shift in such a short period has caught much of the investing world flat-footed," he said.

Markets are also gearing for the release of key US jobs data, which will provide a guide to the state of the economy. 

Atlanta Fed President Raphael Bostic said he expected the forecast recovery could mean that the addition of "a million jobs a month could become the standard through the summer”.

  • Reporting by AFP

Also on ATF

Asian Markets

  • Japan’s Nikkei 225 fell 0.9% to 29,178.80
  • Hong Kong’s Hang Seng slid 0.7% to 28,378.35
  • China’s CSI300 lost 0.43 to 3,441.91