U.S. bond yields rose, oil prices fluctuated and Asian stocks were jittery

Spark Global Limited reports:

Asian stocks were jittery in early trading on Wednesday as U.S. Treasury yields rose and oil prices wobbled as the United States and other countries cooled.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.24 per cent, while Japan’s benchmark Nikkei stock price index fell 1.13 per cent as it caught up with global declines after a holiday yesterday.

Oil firmed up 3%, a day after a one-week high, even after the US said it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and the UK, repeated calls for more crude failed to affect Opec + producers after cooling.

Brent crude reversed early losses to rise 0.15 per cent to $82.43 a barrel, while US crude rose 0.33 per cent to $78.76 a barrel.

“There’s a lot going on,” says Carlos Casanova, senior Asia economist at UBP, the Swiss private bank.

“10-year yields are rising and the US dollar is strengthening, which is a bit disruptive for Asian markets because a lot of currencies [apart from the renminbi] will depreciate and there will be some outflows on the back of widening real spreads.”

However, he said: “China’s asset class has held up relatively well.” He attributed the strength to the People’s Bank of China removing several hawkish phrases from its quarterly monetary policy support on Friday, suggesting the central bank would provide support later this year or early next year, “which will provide support for the stock market.”

China blue chips were flat 0.1 per cent last week and up about 0.5 per cent so far this week, after losing nearly 1 per cent this week. Hong Kong shares fell 0.1 per cent.

Overnight, the 10-year Treasury yield rose more than 5 basis points to 1.684 per cent, while the 30-year yield rose 6 basis points. The yield on the two-year Treasury note fell on Monday, hitting its highest level since March 2020.

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Sim Moh Siong, currency strategist at Bank of Singapore, said: “There is a risk that the Fed could accelerate tapering [of its bond-buying stimulus programme, which in turn means the tightening timetable could be brought forward, boosting the dollar.”

Investors will be watching the Minutes of the Federal Reserve’s November meeting, due out later in the day, for signs that the pace of tapering could accelerate.

Non-interest-bearing gold, which has reacted poorly to the rise in US Treasury yields, rebounded slightly. Spot prices last traded at $1,794, up 0.2 percent, but still near Tuesday’s two-week low.

Trading in major currencies is largely based on expectations of the central bank’s timetable for interest rate normalization.

New Zealand’s central bank raised interest rates for the second time in two months on Wednesday as rising inflationary pressures and the easing of coronavirus restrictions supported economic activity.

However, with markets open to the possibility of a big rate hike, the Kiwi wobbled on the news and ended slightly at $0.6928.

Next on the agenda in Asia is the Bank of Korea, which holds a policy meeting on Thursday.

All but one of 30 economists polled by Reuters between November 15 and 22 expected the bank of Korea to raise its benchmark interest rate by 25 basis points to 1.00 percent, with dissenting economists predicting further increases.

In addition, the dollar largely held on to its recent gains against most currencies, supported by higher U.S. Treasury yields, before taking a breather in currency markets on Wednesday.

However, the dollar did rise slightly against the yen, hitting a 4-1/2-year high of 115.22 yen.

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