Asian stocks slipped and Treasury yields were steady as investors balanced the risk of a stronger recovery driving global rates higher against the Federal Reserve’s pledge of continued policy support.
Japanese equities underperformed as an Asian equity gauge retreated. S&P 500 contracts fluctuated after the benchmark reversed losses to close in the green. Fed Chair Jerome Powell signaled the Fed was nowhere close to unwinding its easy policy. The best performers were airlines, lodging companies and cyclical shares set to benefit from the end of pandemic lockdowns, while the tech heavy Nasdaq 100 closed lower despite a late rally.
Powell voiced cautious expectations for a return to more-normal activity later this year and said that higher bond yields reflected economic optimism, not inflation fears. That helped fuel a return of the buy-the-dip mentality that has limited equity drawdowns in recent months, with investors betting on a global economic recovery spurred by vaccines and U.S. spending.
“Investors need not doubt that what we are experiencing is a classic cyclical upswing: economic growth contracted last year, the cause of that contraction is now being resolved, and that allows growth (and earnings) to expand, supporting risk assets,” wrote Lauren Goodwin, portfolio strategist at New York Life Investments.
Nevertheless, money-market traders have pulled forward their rate hike expectations since the start of this year, and now see the Fed raising interest rates a quarter point by the middle of 2023.
Elsewhere, Bitcoin steadied after a bout of volatility highlighted lingering doubts about the durability of the token’s gains. Oil has extended losses as technical indicators signal prices are due for a correction.
Some key events to watch this week:
- EIA crude oil inventory report is out Wednesday.
- Finance ministers and central bankers from the Group of 20 will meet virtually Friday. U.S. Treasury Secretary Janet Yellen will be among the attendees.
These are some of the main moves in markets:
- S&P 500 futures rose 0.1% as of 10:10 a.m. in Tokyo. The S&P 500 index rose 0.1% on Tuesday.
- South Korea’s Kospi index added 0.3%.
- Japan’s Topix index dipped 0.7%.
- Australia’s S&P/ASX 200 Index fell 0.5%.
- The Bloomberg Dollar Spot Index was little changed.
- The euro bought $1.2155.
- The yen was at 105.36 per dollar.
- The offshore yuan was at 6.4529 per dollar.
- The yield on 10-year Treasuries was steady at 1.34%.
- West Texas Intermediate crude fell 0.8% to $61.20 a barrel.
- Gold was up 0.1% at $1,808 an ounce.
— With assistance by Emily Barrett