Asia in cautious mood, yen near 6-year low

A man wearing a mask following the outbreak of coronavirus disease (COVID-19) stands on an overpass with an electronic board displaying the Shanghai and Shenzhen stock indexes in Lujiazui financial district in Shanghai
FILE PHOTO: A man wearing a face mask stands on an overpass with an electronic board showing the stock indices of Shanghai and Shenzhen in the Lujiazui financial district in Shanghai, China, following the outbreak of the coronavirus disease (COVID-19), January 6, 2021. REUTERS/Aly Song

March 21, 2022

By Wayne Cole

SYDNEY (Reuters) – Asian stock markets started the week in cautious mood on Monday as investors hung on to hopes of an eventual peace deal in Ukraine, but fighting raged on with no sign of stopping.

Turkey’s foreign minister said on Sunday Russia and Ukraine are nearing an agreement on “critical” issues and are hoping for a ceasefire.

Investors were also anxiously awaiting whether Russia would make its interest rate payments this week. It has $615 million in coupons to pay this month while a $2 billion bond matures on April 4.

Most equity markets rallied last week in anticipation of an eventual peace deal on Ukraine, but it may take actual progress to justify further gains.

BofA’s global fund manager survey had a bearish undertone with the highest cash holdings since April 2020 and global growth expectations since the 2008 financial crisis.

Long positions in oil and commodities were the busiest trades and vulnerable to a pullback.

Trading was sluggish due to the Japanese holiday, leaving S&P 500 stock futures and Nasdaq futures little changed. MSCI’s broadest index of Asia-Pacific stocks outside of Japan was also unchanged.

Japan’s Nikkei closed but futures traded around 300 points above the close.

Bond markets were set for more hawkish language from the Federal Reserve, with Chair Jerome Powell speaking on Monday and at least half a dozen other members throughout the week.

Policymakers have announced a series of rate hikes to bring the key interest rate to between 1.75% and 3.0% by the end of the year. The market implies a 50/50 chance of a half-point increase in May and an even bigger chance by June.

“By balancing near-term upside risks to inflation with downside risks to growth, central banks are sending a clear and strong signal that policy is on the way to normalization,” said JPMorgan Chief Economist Bruce Kasman.

“However, a prolonged disruption in Russia’s energy supply would push inflation significantly higher and add to the already strong purchasing power of US consumers,” he warned, adding that this would likely plunge the euro zone into recession.

“In this scenario, policy normalization would stall globally.”


With the Treasury yield curve flattening significantly in recent weeks, the market appears to be aware of the risks to growth. The spread between two- and ten-year yields has narrowed to just 21 basis points, the smallest since the pandemic began in early 2020.

Higher Treasury yields have helped lift the US dollar against the yen, where the Bank of Japan remains committed to keeping yields close to zero. The dollar rose to almost its highest level since early 2016 at 119.28 yen after rising 1.6% last week.

The dollar has been less fortunate elsewhere, in part because history shows that once the Fed begins a tightening campaign, the currency tends to decline.

The euro remained at $1.1040 on Monday after rising 1.3% last week. The dollar index came in at 98.295, down from its recent high of 99.415.

Joseph Capurso, head of international economics at CBA, noted that flash manufacturing PMI surveys out of Europe would pose a hurdle for the euro this week.

“Europe is most exposed to lower supply and higher prices for gas and agricultural imports from Russia and Ukraine,” he said. “A pullback in the Eurozone PMI into contractionary territory could push EUR/USD back closer to its war lows of $1.0806.”

In the commodity markets, gold hasn’t been able to get much of a boost from safe-haven flows or inflation concerns, losing more than 3% last week. Most recently it was $1,919 an ounce. [GOL/]

Oil prices also lost ground last week, although they rose slightly on Monday as there were no easy substitutes for Russian barrels in a strained market. [O/R]

Brent was last traded up $1.41 to $109.34, while US crude was up $1.65 to $106.35 a barrel.

(Reporting by Wayne Cole; Editing by Sam Holmes) Asia in cautious mood, yen near 6-year low


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