Asian stocks traded mixed and U.S. futures climbed Thursday as the market pondered a burgeoning debate around whether inflation is peaking that sparked a rally in Treasuries.
Equities were modestly in the green in Japan, but opened weaker in Hong Kong and China where investors are pining for more policy support. S&P 500 and Nasdaq 100 futures advanced after positive earnings from Tesla Inc. and United Airlines Holdings Inc. provided an antidote to a muted U.S. session.
Rate markets underwent a sharp repricing, sending long bond yields sinking as investors such as Bank of America Corp. and Nomura Asset Management said this is a buying opportunity after the recent rout. Ten-year yields trimmed a steep retreat. A dollar gauge pared a slide as the yen resumed a decline.
Technology stocks traded in Hong Kong fell for a third day after the Nasdaq Golden Dragon China Index of the nation’s shares traded in the U.S. tumbled almost 5%. Investors have so far been disappointed at Chinese measures to counter the impact of lockdowns on the economy.
While the peak-inflation debate is intensifying, it’s unlikely to derail global central banks from their tightening path as commodity shortages from the war in Ukraine keep prices elevated. New Zealand inflation accelerated in the first quarter to the fastest pace in 32 years, validating the central bank’s pursuit of an aggressive tightening cycle.
In an ominous sign for risk assets, U.S. 10-year real yields briefly turned positive on Wednesday for the first time since March 2020 as traders added to bets on an aggressive Fed hiking cycle.
“There are still some risks right now,” Ray Sharma-Ong, abrdn Multi-Asset Solutions investment director, Asia Pacific, said on Bloomberg Television. “It’s not over. We do still see some risk of 10-year yields pushing higher on the back of this uncertainty,” as investors await details on the Fed’s timeline for shrinking its balance sheet.
The U.S. economy grew at a moderate pace through mid-April, but rising prices and geopolitical developments created uncertainty and clouded the outlook for future growth, the Fed said in its Beige Book survey released Wednesday.
“Strong demand allowed firms to pass through input cost increases in consumers,” Carol Kong, a strategist at Commonwealth Bank of Australia, said in a note. “The anecdotal evidence supports our view the FOMC is well behind the curve and needs to tighten policy aggressively.”
Investors will be looking for any clues on central bankers’ thinking on rates and inflation when Fed Chair Jerome Powell and European Central Bank President Christine Lagarde discuss the global economy at an IMF event Thursday.
Elsewhere, Russia was ruled in potential default of two bonds, marking another milestone on the nation’s path to its first foreign debt default in a century.
