Written by Andrew Galbraith
SHANGHAI (Reuters) – Asian stock markets broke a five-day slump to head higher on Thursday, ignoring declines in Europe and on Wall Street overnight as China underlined its mixed monetary and economic picture by cutting record mortgage rates.
Despite a flat start in Asia, ING analysts said geopolitical risks, in particular the possibility of Russia’s invasion of Ukraine, may continue to weigh on global equities, adding to the current pressure from expectations of higher interest rates.
“Markets may soon begin to take into account a greater risk of conflict between Russia and Ukraine, which is one reason why stocks continue to sell and why Treasury yields are not rising in one direction.”
US President Joe Biden on Wednesday predicted Russia would make a move on Ukraine, saying a large-scale invasion would be a “disaster for Russia” but noting there could be a lower cost to a “small incursion”.
Expectations that the US Federal Reserve will move more quickly to raise interest rates to combat inflation particularly affected technology stocks overnight, sending the Nasdaq down more than 1% into correction territory.
The sell-off hit bonds as well, pushing US Treasury yields to a two-year high on Wednesday, and taking German 10-year bond yields into positive territory for the first time since May 2019 as investors bet policy makers will curb years of stimulus in order to fight rising inflation. Which is exacerbated by supply chain disruption.
“There comes a point when it empties, you might want to stop dumping. If bonds start to go up a little bit, and you see yields dip yesterday in the US, that kind of looks like…” said Matt Simpson, chief market analyst at City Index in Sydney. Follow up today.”
In stark contrast to the global move toward stricter policy and higher rates, China on Thursday lowered its benchmark mortgage rate for the first time in nearly two years. The move came on the heels of a surprise cut in the central bank’s one-year medium-term loan rate on Monday.
China’s monetary authorities have indicated they will take more accommodative steps this year to support slowing growth in the world’s second-largest economy. Data released on Monday showed weak consumption and the real estate sector clouding expectations despite strong headline growth numbers.
China’s blue-chip CSI300 Index is up 0.7% Thursday morning and Hong Kong’s Hang Seng Index is up more than 1.4%. The rise in Chinese stocks boosted the MSCI broadest index of Asian stocks outside Japan, which added 0.54%.
The Kospi in Seoul rose 0.1% and Australian shares fell by the same margin. In Tokyo, the Nikkei added 0.17%.
The modest gains in Asia came after Wall Street investors looked at past strong earnings in inflation expectations and interest rate hikes.
The Dow Jones Industrial Average fell 0.96% and the S&P 500 lost 0.97%. The Nasdaq Composite is down 1.15%, bringing it below the record closing high on November 19 to confirm a correction of more than 10%.
In the Asian trading day, US yields rose, but remained below the highs of the previous session. The benchmark 10-year yield rose to 1.8485% from a US close of 1.827%, and the policy-sensitive two-year yield touched 1.0449% compared to the US close at 1.025%.
A pause in the Treasury yields rally kept the dollar in check, as the dollar index, which measures the greenback against six major peers, fell to 95.477 as commodity currencies benefited from higher oil prices.
The Australian dollar rose 0.4%.
The dollar slipped 0.08% against the Japanese yen to 114.23 and the euro rose 0.15% to $1.1356.
Oil prices, which touched their highest levels since 2014 on Wednesday, fell due to strong demand and disruption to short-term supplies. Global benchmark Brent crude fell 0.84% to $87.70 a barrel, and US crude fell 1.1% to $86 a barrel. [O/R]
Gold continued to rise after posting its best session in three months the day before. Spot gold rose 0.08% to $1,841.12 an ounce.
(Reporting by Andrew Galbraith; Editing by Simon Cameron Moore)
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