Assurance by central banks they won't withdraw stimulus behind investors regaining appetite
Market benchmarks in Asian bourses of Shanghai, Tokyo, Hong Kong and Seoul advanced as inflation fears eased in Wall Street and investors regained appetite for risk on Tuesday.
Overnight, Wall Street’s benchmark S&P 500 index rose 1 per cent, recovering about half of last week’s losses, led by tech stocks. It is now on track for a 0.4 per cent monthly gain, as the latest quarterly profit-reporting season nears an end.
Investors were worried a global economic recovery might be hampered if rising inflation prompts governments and central banks to withdraw stimulus. But a Federal Reserve official allayed some of those fears when he said the US central bank shouldn’t look at changing policy in the midst of the pandemic.
“US markets delivered a positive start for the week, as easing inflation concerns drive a bounce in tech,” said Yeap Jun Rong of IG in a report.
The Shanghai Composite Index rose 1.6 per cent to 3,553.12, while Nikkei 225 in Tokyo gained 0.6 per cent to 28,534.27. The Hang Seng in Hong Kong advanced 1.2 per cent to 28,764.21, while the Kospi in Seoul was 0.8 per cent higher at 3,168.07 and the S&-ASX 200 in Sydney added 0.7 per cent to 7,092.30. New Zealand was the only market that fell in the Asia-Pacific region.
After hitting a record high on May 7, stocks fell amid growing concerns that higher inflation as economies revive would disrupt commerce or prompt governments to roll back stimulus and easy credit.
On Monday, the president of St Louis Federal Reserve Bank, James Bullard, told Yahoo Finance that more inflation was “not really a surprise” and it wasn’t time to rethink monetary policy. Earlier, Fed officials said the US economy would be allowed to “run hot”, with inflation above the central bank’s 2 per cent target, to establish the recovery.
“I think there will come a time when we can talk more about changing parameters of monetary policy,” Bullard said. “I don’t think we should do it when we’re still in the midst of the pandemic.”
The Dow Jones Industrial Average added 0.5 per cent to 34,393.98. The tech-heavy Nasdaq Composite gained 1.4 per cent to 13,661.17. Nvidia rose 4.1 per cent, while Micron Technology added 2.7 per cent. Among communication stocks, Facebook gained 2.7 per cent and Twitter jumped 4.8 per cent.
Companies that rely on direct consumer spending made solid gains, while sectors that are viewed as safe havens such as utilities lagged.
Bond yields, or the difference between market price and payout at maturity, fell, as prices rose. This is often taken as a sign that investors are less concerned about inflation, which can erode value of the payout.
On Friday, the US commerce department will release one of its inflation gauges, the personal consumption and expenditures index, or Core PCE. The Fed prefers this tool to measure inflation, instead of the consumer price index released earlier this month.
Economists surveyed by FactSet expect Core PCE to be up 3 per cent from a year ago, which would be above the Fed target.
In energy markets, benchmark US crude gained 11 cents to $66.16 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.47 to $66.05 on Monday. Brent crude, the price basis for international oils, gained 20 cents to $68.57 per barrel in London, adding $2.02 the previous session to $68.46.
The US dollar declined to 108.72 yen from Monday’s 108.79 yen. The euro rose to $1.2230 from $1.2213.