Market Close Mar 04

Rates sell-off spooks markets  

Inflation fears keeps yields elevated; Markets worry about drastic upgrade of growth forecasts; High PE sectors most at risk

Rates sell-off spooks markets  
Chinese gold mining companies are on a buying spree in West Africa and South America, outbidding rivals for assets in less familiar regions as the governments in their usual hunting grounds turn against them. China's overseas mining M&A activity fell overall in 2020, Refinitiv data shows. The number of acquisitions in the gold sector tripled from 2019 even though a surge in the gold market to record levels inflated premiums. Bankers and lawyers predicted the focus would continue. There is also interest in new economy metals such as lithium, cobalt and graphite. File pic of a gold mine in Burkino Faso: Reuters.

(ATF) Hong Kong: Asian markets were hammered by investor concerns that central banks could be behind the curve in raising interest rates with the prospects for a surge in US consumer spending after the White House announced a major vaccine programme.

The US plan to vaccinate every adult by the end of May, two months earlier than previously reported, would lead to upward revision of growth targets and therefore cause price pressures in the economy.

Japan’s Nikkei 225 index tumbled 2.13%, Australia’s S&P ASX 200 slipped 0.84%, Hong Kong’s Hang Seng index dived 2.15%, and China’s CSI300 dropped 3.15%. Regionally, the MSCI Asia Pacific index retreated 1.33%.

“The market focus remains worryingly on higher interest rates, a byproduct of market-based inflation expectations, as well as the throughput effect into the heavily owned tech sector, where alarm bells are sounding amid lofty valuations,” said Stephen Innes, Chief Global Market Strategist at Axi.

US Treasuries have stabilised and yields are off highs but still above last month’s range and the benchmark 10-year yield at 1.47% is 55 basis points higher since the start of the year. 

The higher yield has propelled the US dollar with its value against a basket of currencies up 0.3% at 91.2. 

There were supply side factors to the inflationary expectations too. Copper has doubled from the lows seen a year ago and rose to a near 9-1/2-year high on Wednesday and aluminium is hovering around its highest since 2011. Gold rose 0.4% at $1,715 per ounce.

“Navigating inflation euphoria is no easy task as commodity base effects, fiscal stimulus, and reopening coincide. It will be difficult to fight inflation enthusiasm and even more problematic for FX markets, as monetary and fiscal policy differentiation tends to be more pronounced heading out of a crisis than when during a financial emergency,” Innes said.

But this fear is expected to be shortlived.

“Our view is that US real yields are generally likely to stabilise, or even drop back a bit, from here,” Franziska Palmas, a markets economist at Capital Economics, said.

“We don’t expect the recent rise in US bond yields to turn into a rerun of the 2013 Taper Tantrum. But even if US real yields continued to grind higher, we think that EM assets and currencies would be better placed to cope than in 2013.” 

ATF China Bond 50 Index: SOE bond gauge climbs as risk bid returns

 Also on Asia Times Financial

Asia Stocks

· Japan’s Nikkei 225 index tumbles 2.13%

· Australia’s S&P ASX 200 slips 0.84% 

· Hong Kong’s Hang Seng index dives 2.15%

· China’s CSI300 plunges 3.15%

· The MSCI Asia Pacific index retreats 1.33%.

Stock of the day

Shimao Services, the property management arm of Chinese real estate giant Shimao rose 4.6%, bucking the trend in a falling market and outperforming the index, after it said its profits for the year 2020 would rise by at least 80%. “The increase was mainly attributable to the increase in the gross floor area of the properties under the group’s management and the comprehensive growth in revenue from community value-added services and value-added services to non-property owners,” it said in a statement.

Asia markets US Fed interest rates Treasury bonds inflation fears Powell