Friday, September 30, 2022

GLOBAL MARKETS Asia shares join global rally following talks between Ukraine and Russia

HONG KONG, March 30 (Reuters) – Asian equities joined a global upswing on Wednesday as hopes for a negotiated end to the Ukraine conflict escalated, while bond markets showed overnight concerns that aggressive rate hikes could hurt the US economy after 10-year yields briefly dropped below two-year rates.

MSCI’s broadest Asia-Pacific equities index outside Japan rose 1% to its highest level since March 4, with most Asian stock markets in positive territory.

However, Japan’s Nikkei reversed the trend and fell by 1% as observers pointed to profit-taking heading towards the end of the financial year. The benchmark reached a closing high of two months on Tuesday.

Ukraine on Tuesday proposed adopting a neutral status in a sign of progress in face-to-face negotiations, although on the ground reports of attacks continued, and Ukraine reacted with skepticism about Russia’s promise in military negotiations to scale down operations around Kiev.

Nevertheless, the news helped the Dow Jones Industrial Average and S&P 500 achieve their fourth consecutive session of gains overnight, after European stocks rose sharply.

US S&P 500 futures have changed little in Asian trade.

“On the one hand, there has been more positive news about Ukraine, and the market is hoping for a peace deal at some point, which results in a bit of a ‘risk-on’ event, with stocks rising and higher yielding bond yields. , ”Said Shane Oliver, chief economist and head of investment strategy at AMP Capital.

“But then it’s back to concerns about inflation and bond yields, and there’s this debate about whether we’re going to see a recession in the US due to the inversion of part of the US yield curve.”

The widely-tracked U.S. 2-10-year Treasury yield curve reversed briefly on Tuesday for the first time since September 2019, as bond investors bet that aggressive tightening by the Federal Reserve could hurt the U.S. economy over the longer term.

Long-term yields that fall below shorter indicate a lack of faith in future growth, and 10-year yields that fall below 2-year rates are widely seen as a harbinger of recession.

On the other hand, the spread between the yield on 3-month treasury bills and 10-year notes remained steeper this month.

“The messages from the yield curve are very confusing,” Oliver said.

The benchmark U.S. 10-year yield was last slightly softer at 2.3815 and rose as high as 2.557% on Monday, the highest since April 2019, as traders positioned themselves for rapid rate hikes by the U.S. Federal Reserve.

The difference between the US 10-year and 2-year returns was last at 2.7 basis points.

JAPAN IN FOCUS

Rising US yields are also dragging down Japanese government bond yields in their wake, a threat to Japan’s ultra-loose monetary policy.

The Bank of Japan on Wednesday stepped up its efforts to defend its key yield limit and offered to increase the purchase of government bonds across the curve, including through unscheduled emergency market operations.

While this seems to underline its intention to stick to the policy, some analysts have questioned whether the strategy is sustainable.

“I would not be surprised if the Bank of Japan sets a higher limit for 10-year JBG returns – currently at 0.25%. They can not afford to be too far behind the curve, because if the yen weakens further above certain levels, it can create market fears, ”says Joël Le Saux, fund manager of Eurizon Fund’s Sustainable Japan Equity sub-fund.

The growing gap between US and Japanese yields has caused the yen to weaken sharply. On Wednesday morning, it was at 122.36 per dollar, after recovering slightly from Monday’s low of 124.3, but the dollar was still 6.9% higher against the yen this month.

Elsewhere in foreign exchange markets, the euro was backed at $ 1.1104 by the prospect of peace in Ukraine, after jumping nearly 1% overnight.

Strict supply has kept oil prices firm despite hopes over the Russia-Ukraine talks, according to analysts.

Brent crude rose 1% to $ 111.36 a barrel. US crude rose 0.83% to $ 105.12.

Spot gold rose 0.1% to $ 1920.6 per ounce.

Edited by Simon Cameron-Moore

Nation World News Desk
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