SYDNEY (Reuters) – Asian stocks took a breather on Monday while Treasury yields were at their highest in 10 months as “trillions” were due to be unveiled in new US fiscal stimulus plans this week, fueling global deflationary trade.
Investors have been watching US policy cautiously as pressure builds to impeach President Donald Trump, although signs that the actual trial could be some time away.
The MSCI’s broadest index of Asia-Pacific stocks outside of Japan fell 0.2%, after rising 5% last week to record highs. Japan’s Nikkei was on holiday after closing at a 30-year high on Friday.
South Korea stabilized after an early jump, and Chinese blue-chip stocks increased 0.7%.
“Asia has gone through a second global crisis this millennium with its credentials,” said ANZ chief economist Richard Ytsenga.
“Growth in Asia is stronger, mostly with better demographics and debt levels than developed economies.”
He noted that the shift in fortunes between the semiconductor and energy sectors highlighted Asia’s success, given that the region produces about 45% of the world’s semiconductors.
He said: “For the first time the market value of the global energy semiconductor sector has exceeded.” “At the time of the last crisis, 12 years ago, the energy sector was five times bigger.”
S&P 500 futures are down 0.6% from their all-time highs, after rising 1.8% last week. EUROSTOXX 50 futures are 0.1% lower, FTSE futures are flat.
Long-term Treasury yields were at their highest since March after a weak jobs report released on Friday that sparked speculation of more US fiscal stimulus now that the Democrats take control of the government.
President-elect Joe Biden is set to announce plans for “trillions” in new relief bills this week, many of which will be paid for by increased borrowing.
Meanwhile, the Fed appears content with placing the burden on fiscal policy, with Vice President Richard Clarida saying there will soon be no change to the $ 120 billion debt that the Fed buys each month.
With the Fed reluctant to buy more long-term bonds, the 10-year Treasury yield jumped nearly 20 basis points last week to 1.12%, the biggest weekly rise since June.
Treasury futures lost another 3 points early Monday.
Mark Cabana of Bank of America warned that the stimulus could increase pressure on the dollar and cause the Federal Reserve to start tapering later this year.
He said in a note to clients: “The early Federal Reserve’s gradual reduction creates bullish risks to our Treasury end-of-year target of 1.5% for 10 years and supports our long-term outlook for neutral rates moving towards 3%.”
The weak jobs report will increase interest in US data on inflation, retail sales and consumer confidence.
Earnings will also be in focus as JP Morgan, Citigroup and Wells Fargo were among the first companies to release fourth-quarter results on January 15th.
The rise in yields in turn provided some support for the declining dollar, which rose to 90.439 against a basket of currencies, from last week’s low of 89.206.
The Euro fell to $ 1.2170 from a recent high of $ 1.2349, and broke support around $ 1.2190. The dollar also rose to 104.18 yen from 102.57 yen last week.
The sudden spike in bond yields undermined gold, which pays no interest, and the metal fell 1.1% to $ 1,828 an ounce from a recent high of $ 1,959. [GOL/]
Oil prices have entered profit-taking after hitting their highest in nearly a year on Friday, rising 8% in the week following Saudi Arabia’s pledge to cut production. [O/R]
Brent crude futures fell 48 cents to $ 55.51, while US crude futures lost 28 cents to $ 51.96 a barrel.