Market Close Mar 17

Markets edgy with eyes on Fed

US Treasury yields hit post-pandemic highs; oil slumps as questions around travel resumptions simmer; US growth, inflation outlook key drivers in days ahead

Markets edgy with eyes on Fed

(ATF) Hong Kong: Asian markets barely held on to gains as edgy investors pared bullish bets ahead of the US Federal Reserve. Sentiment was also soured by off-the-chart GDP growth projections that revived inflation fears.

There are also concerns that the Fed will reduce its bond purchase programme to reflect the improved economic outlook – already seen in 10-year US Treasury yields rising to 1.65% pandemic-era high.

Regional markets were little changed with the MSCI Asia Pacific index dipping 0.15%. Japan’s Nikkei 225 index ended flat, Australia’s S&P ASX 200 retreated 0.47%, Hong Kong’s Hang Seng index added 0.22% and China’s CSI300 added 0.42%.

US central bank’s Federal Open Market Committee ends its two-day meeting later in the day and financial markets are monitoring the view on growth, inflation and asset purchases.

“Focus will be on the Fed’s Summary of Economic Projections, which is likely to be more optimistic about US growth on President Biden’s USD1.9 trillion stimulus bill and stepped up vaccination drive,” said Duncan Tan, and Philip Wee, DBS Group strategists.

They expect the world’s largest economy to grow by 6% this year and the 10-year bond yield to hit 1.75%.

Fed commitment

“The dot plot is expected to reaffirm the Fed’s commitment to its new flexible average inflation targeting framework i.e. look past a rise in inflation above 2% with no rate hikes through 2023. One or two members pencilling in a hike in 2023 is possible. If so, this could signal more internal debate regarding tapering asset purchases later this year.”

The US dollar was steady at around 92 against a basket of currencies and oil declined as debate raged about how soon travel will normalise amid vaccine rollouts across the world.

West Texas Intermediate crude eased 0.7% to $64.36 a barrel and Brent crude dipped 1% to $67.74 a barrel.

The strength of the US dollar and rising US Treasury yields have jolted parts of Asia – a net oil importing region.

“While we expect further international bond yield increases to be modest, if US rates rise more substantially, yields in Southeast Asia, India, Hong Kong, and Australia will likely feel more upward pressure than those in China and Japan, while APAC exchange rates should depreciate further,” said Louis Kuijs, Head of Asia Economics at Oxford Economics.

But much of north Asia remained unperturbed by the yield spike.

“Bond markets there are less sensitive to changes in international rates because of a relatively domestic orientation, generally high current account surpluses and lingering capital account friction in China and Taiwan,” said Kuijs. 

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index ended flat
  • Australia’s S&P ASX 200 retreated 0.47% 
  • Hong Kong’s Hang Seng index added 0.22%
  • China’s CSI300 added 0.42%
  • The MSCI Asia Pacific index dipped 0.15%.

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ZTE Corpn shares rose as much as 10.8% after announcing results which showed a 37% rise in operating cash flows and a doubling of net profit.

Fed Equities Bonds FX Inflation