Asian stocks rally, battered bond market tries for stability

Asian stocks

Asian stocks rally, battered bond market tries for stability

Asian shares rallied on Monday as some semblance of calm returned to bond markets after last week’s wild ride, while progress in the huge U.S. stimulus package underpinned optimism about the global economy and sent oil prices higher.

China’s official manufacturing PMI out over the weekend missed forecasts, but Japanese figures showed the fastest growth in two years. Investors are also counting on upbeat news from a raft of U.S. data due this week including the February payrolls report.

Helping sentiment was news deliveries of the newly approved Johnson & Johnson COVID-19 vaccine should start on Tuesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 1%, after shedding 3.7% last Friday.

Japan’s Nikkei 225 rallied 2.1%, while Chinese blue chips added 0.8%.

Yields on U.S. 10-year notes held at 1.40%, from last week’s peak of 1.61%. They climbed 11 basis points last week to be up 50 basis points on the year so far.

“The bond moves on Friday still feel like a pause for air, rather than the catalyst for a move towards calmer waters,” said Rodrigo Catril, a senior strategist at NAB.

“Market participants remain nervous over the prospect of higher inflation as economies look to reopen aided by vaccine roll outs, high levels of savings along with solid fiscal and monetary support.”

Analysts at BofA noted the bond bear market was now one of the most severe on record with the annualised price return from 10-year U.S. govt bonds down 29% since last August, with Australia off 19%, the UK 16% and Canada 10%.

The rout owed much to expectations of faster U.S. growth as the House passed President Joe Biden’s $1.9 trillion coronavirus relief package, sending it to the Senate.

BofA’s U.S. Economist Michelle Meyer lifted her forecast for economic growth to 6.5% for this year and 5% next, due to the likelihood of the larger stimulus package, better news on the virus front and encouraging data.

U.S. virus cases were also down 72% since a Jan. 12 peak and hospitalisations are following closely behind, BofA added.

Mainland Chinese stocks were up by the early morning. The Shanghai Composite was up by 0.83% to 3538.27. Hong Kong’s Hang Seng Index was up about 1.05% to 29,287.81.

Japan’s benchmark Nikkei average Nikkei 225 is trading up 2.46 per cent at 29,677.50 on Monday, while the broader TOPIX  100 rose 1.95  per cent to 1,242.35. South Korea’s Kospi was down by 2.80% to 3012.62.

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