Market Close Mar 18

Tentative gains as taper fears swirl

Australia underperforms after blowout jobs numbers; gold dives as US dollar strengthens; US Treasury yields at 15-month high

Tentative gains as taper fears swirl

Hong Kong: Asian markets cheered the projected strength of the US economy but persistent worries about inflation and a faster reduction in asset purchases by the Federal Reserve triggered a bond selloff.

Ten-year Treasury yields climbed to a 15-month high of 1.746%, reflecting the unease around price pressures and withdrawal of Treasury purchases.

The US economy is now projected to grow 6.5% this year, the biggest annual jump in gross domestic product since 1984, and the unemployment rate is expected to fall to 4.5% by the year’s end. That compares with projections in December of 4.2% GDP growth and 5% unemployment.

Japan’s Nikkei 225 index advanced 1.01%, Hong Kong’s Hang Seng index added 1.28% and China’s CSI300 rose 0.80%. But Australia’s S&P ASX 200 eased 0.73% after blowout employment numbers sparked fears the easy monetary policy could end sooner. Regionally, the MSCI Asia Pacific index climbed 1.21%.

“The Fed’s improved assessment suggests that the US output gap will close significantly faster than its developed markets peers, with the Fed leading the next tightening cycle,” said DBS strategists Eugene Leow and Philip Wee. 

“Investors now worry that a taper tantrum may be a larger tail risk than Covid-19.”

Fitch analysts said they now expect the Fed to announce a tapering of its asset-purchase programme in the second half, before beginning the taper in early 2022. 

“This and the recent sharp rise in US bond yields has raised the risk of a repeat of 2013’s ‘taper tantrum’. Nevertheless, we expect the rise in US bond yields to be gradual and for global financial conditions to remain supportive by historical standards,” said Ed Parker and James McCormack, Fitch analysts. 

The dollar rose on the improved US economic outlook with the currency rising 0.2% against a basket of currencies to 91.6. That weighed on demand for gold with the yellow metal slipping 0.8% to $1,735 per ounce.

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index advanced 1.01%
  • Australia’s S&P ASX 200 eased 0.73% 
  • Hong Kong’s Hang Seng index added 1.28%
  • China’s CSI300 rose 0.80%
  • The MSCI Asia Pacific index climbed 1.21%

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