Asian Stocks Up, Withstands Bond Tumble Triggered by Hawkish Powell Comments

(C) Reuters.

By Gina Lee – Asia Pacific stocks were mostly up on Tuesday morning, with U.S. and European equity futures falling. Bonds were under pressure as U.S. Federal Reserve Chairman Jerome Powell adopted a more hawkish tone on monetary policy.

Japan’s Nikkei 225 jumped 1.63% by 10:17 PM ET (2:17 AM GMT), with the market reopening after a holiday.

South Korea’s KOSPI gained 0.66% and in Australia, the ASX 200 rose 1.18%.

Hong Kong’s Hang Seng Index rose 0.64%.

China’s Shanghai Composite edged up 0.15% while the Shenzhen Component fell 0.81%.

U.S. Treasuries extended losses on Monday, which included one of the biggest daily climbs in short-dated yields in the past decade. The gap between five-year and 30-year U.S. yields is near its smallest since 2007. Australian and New Zealand debt were also on a downward trend.

A weaker Japanese yen could bolster exporters’ outlooks in Australia, South Korea, and Japan, where stocks were up.

Powell said the Fed is prepared to hike interest rates by a half percentage point at its next policy meeting if needed. The central bank hiked its interest rate to 0.5% as it handed down its latest policy decision during the previous week.

Movements in the bond market remained a focal point for some investors, who worried about an economic downturn.

“If Powell is reinforcing that they are going to address inflation, that they’ve made mistakes, that their expectations of inflation were incorrect, just admitting that and saying that we’re ready to do everything it takes, is definitely reassuring for equity investors,” Main Street Asset Management chief investment officer Erin Gibbs told Bloomberg.

Derivative traders on Monday priced in about seven and a half rate hikes at the remaining six Fed meetings for 2022.

“For the long term, 2.3% on the 10-year is not such a high figure at all. What spooks the market is when you have very quick moves, such as what we’re having now,” Federated Hermes (NYSE:FHI) Inc. senior equity strategist Linda Duessel told Bloomberg.

While Fed tightening might cause disruptions throughout the yield curve, the gap between the three-month and 10-year tenors is still steeply upward sloping, supporting the view that the U.S. economy remains strong, she added.

In contrast to the Fed, expectations are growing that the People’s Bank of China will loosen monetary policy to support the economy as the country continues to deal with its latest COVID-19 outbreak.

China’s State Council pledged stronger monetary policy support but cautioned against flooding the market with liquidity on Monday, according to local media. The government also vowed to avoid measures that can hurt market sentiment.

European Central Bank President Christine Lagarde will speak at the BIS innovation summit, later in the day, with Powell and Bank of England Governor Andrew Bailey following a day later.

Meanwhile, U.K. Chancellor Rishi Sunak will release his “spring statement” on the budget on Wednesday. U.S. President Joe Biden will attend a NATO emergency summit in Brussels a day later.

Asian Stocks Up, Withstands Bond Tumble Triggered by Hawkish Powell Comments

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