Asian stocks join global rally after Ukraine-Russia talks

FILE PHOTO: A man stands on an overpass with an electronic board displaying the Shanghai and Shenzhen stock indices in Shanghai
FILE PHOTO: A man stands on an overpass with an electronic board showing the Shanghai and Shenzhen stock indices in the Lujiazui financial district in Shanghai, China, January 6, 2021. REUTERS/Aly Song//

March 30, 2022

By Alun John

HONG KONG (Reuters) – Asian equities joined a global rally on Wednesday as hopes rose for a negotiated end to the Ukraine conflict, while overnight bond markets signaled concerns that aggressive rate hikes could hurt the US economy after the March 10 -Year yields briefly fell below two year prices.

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

However, Japan’s Nikkei bucked the trend, falling 1% as observers pointed to profit-taking towards the end of the fiscal year. The benchmark hit a two-month closing high on Tuesday.

Ukraine proposed on Tuesday to adopt neutral status as a sign of progress in face-to-face negotiations, although reports of attacks continued to be reported on the ground and Ukraine reacted with skepticism to Russia’s promises in negotiations to reduce military operations around Kyiv.

Nonetheless, the news helped the Dow Jones Industrial Average and the S&P 500 post their fourth consecutive session of overnight gains after European stocks surged.

US S&P 500 futures were little changed in Asian trading.

“On the one hand, there has been more positive news regarding Ukraine and the market is hoping for a peace deal at some point, leading to a certain ‘at risk’ event where stocks rise and bond yields trend higher,” Shane said Oliver, Chief Economist and Head of Investment Strategy at AMP Capital.

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

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

Longer-maturity yields falling below shorter maturities indicate a lack of confidence in future growth, and 10-year yields falling below 2-year maturities are widely seen as a harbinger of a recession.

On the other hand, the spread between the yield of 3-month Treasury bills and 10-year bonds remained steeper this month.

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

The benchmark 10-year Treasury yield was last slightly lower at 2.3815, after rising as high as 2.557% on Monday, its highest level since April 2019, as traders brace for swift rate hikes from the Federal Reserve .

The spread between 10-year and 2-year US yields was last at 2.7 basis points.


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

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

While this obviously underscored his determination to stick with the policy, some analysts questioned whether the strategy was sustainable.

“I wouldn’t be surprised if the Bank of Japan put a higher limit on 10-year JBG yields – currently at 0.25%. They cannot afford to be too far behind the curve because further yen weakness beyond a certain level could fuel market fears,” said Joël Le Saux, fund manager of the Eurizon Fund’s Sustainable Japan Equity sub-fund.

The widening gap between US and Japanese yields has caused the yen to weaken significantly. As of Wednesday morning, it was at 122.36 per dollar after recovering slightly from Monday’s low of 124.3, but the dollar is still up 6.9% against the yen for the month.

Elsewhere, the euro traded at $1.1104, helped by prospects of peace in Ukraine, after rising nearly 1% overnight. [FRX/]

Supply shortages kept oil prices steady despite hopes for Russia-Ukraine talks, analysts said.

Brent crude rose 1% to $111.36 a barrel. US crude was up 0.83% to $105.12. [O/R]

Spot gold rose 0.1% to $1920.6 an ounce. [GOL/]

(Editing by Simon Cameron-Moore) Asian stocks join global rally after Ukraine-Russia talks


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