Market Close Feb 25

Bulls charge ahead as Fed ignores inflation

Barclays raises oil price forecast; China property propels equity benchmarks; more gains seen for yuan on sustained capital inflows

Bulls charge ahead as Fed ignores inflation

(ATF) Hong Kong: Assurances by Federal Reserve Chairman Jerome Powell reignited bullish sentiment as investors took solace from comments reiterating support for the economy and calming fears about inflation.

Japan’s Nikkei 225 index surged 1.67%, Australia’s S&P ASX 200 jumped 0.83%, Hong Kong’s Hang Seng index added 1.20% and China’s CSI300 advanced 0.59%. Regionally, the MSCI Asia Pacific index advanced 1.25%.

“Jerome Powell’s continued resolve to maintain the Fed’s accommodative forward guidance – highlighted in his congressional testimonies on Tuesday and Wednesday – has somewhat calmed markets over the past two days. But the path of least resistance for bond yields remains up,” said BCA Research analysts in a note.

“An inflationary spike over the coming months, coupled with rising real rates, is likely to push up bond yields further.”

Treasuries slide

US Treasuries extended falls with 10-year yields soaring 6 basis points to 1.44%, a one-year peak and oil gushed, with prices hitting 13-month highs. Gold also fell, by 0.7% to $1,791 per ounce, after risk aversion faded.

The yuan continued its stellar rise after the People's Bank of China (PBOC) set the yuan's midpoint rate at 6.4522 per dollar, firmer than Wednesday's fix of 6.4615.

Powell’s reiteration that the Fed wouldn't adjust policy until the economy is clearly improving, and will look through any near-term spike in inflation, has kept the dollar on the backfoot, while lifting higher-yielding emerging-market currencies.

The dollar weakened, breaking the 90 mark against a basket of currencies, falling 0.3% to 89.86. Spot yuan firmed to 6.4523, 33 pips stronger than its previous close. Offshore yuan was stronger at 6.4475 per dollar.

Capital flows

More gains are seen as analysts expect the surge in capital flows to the world's second largest economy may be just beginning.

"China’s integration into the global financial system has only just begun, and the potential for capital flows to expand further is large, especially for portfolio flows," said Louis Kuijs Head of Asia Economics at Oxford Economics.

Oil prices climbed with West Texas Intermediate crude 0.6% higher at $63.58 a barrel. Brent added 0.49%, to $67.37 a barrel. Both benchmarks are hovering around 13-month highs.

Barclays increased its 2021 Brent crude oil price forecast by $7 to $62 per barrel and West Texas Intermediate (WTI) crude price estimate by $6 to $58 a barrel.

“Comments from Fed Chairman, Jerome Powell, earlier in the week relating to the need for monetary policy to remain accommodative have probably helped, but sentiment in the oil market has also become more bullish, with expectations for a tightening oil balance,” said ING oil strategists Warren Patterson and Wenyu Yao.

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index surged 1.67%
  • Australia’s S&P ASX 200 jumped 0.83% 
  • Hong Kong’s Hang Seng index added 1.20%
  • China’s CSI300 advanced 0.59%
  • The MSCI Asia Pacific index advanced 1.25%

Stocks of the day

Chinese property companies rallied after market talk overnight that the central government is asking the local governments of 22 major T1/2 cities to concentrate their public land sales in three auctions a year. Jefferies analysts said large developers would benefit from further market share gains. Sunac rose 14.9%, China Resources added 14.7% and Country Garden rose 10.1%