SYDNEY (Reuters) – Asian stocks eased to record highs on Thursday as investors digested meaty recent gains, while bulls backed by the promise of endless free money after a benign reading of US inflation and a outlook of the Federal Reserve.
The addition to torpor was a lack of liquidity, as the markets in China, Japan, South Korea and Taiwan were all on holiday.
The broader MSCI index of Asia-Pacific equities outside of Japan added 0.1%, after already climbing for four sessions to increase by more than 10% so far this year.
Japan’s Nikkei closed after a 30-year high on Wednesday, while Australia’s main index remained close to an 11-month high.
With China shut down, there has been little reaction to the news that the Biden administration will analyze by adding “new targeted restrictions” on certain exports of sensitive technology to the Asian giant and would maintain tariffs for the time being.
Futures for the S&P 500 and NASDAQ were both steady, after hitting historic highs on Wednesday. EUROSTOXX 50 futures and FTSE futures have just given up.
However, the outlook for a higher global stimulus gained a major boost overnight from a surprisingly easy reading of US core inflation, which fell to 1.4% in January.
Federal Reserve Chairman Jerome Powell said he wants to see inflation reach 2 percent or more before even considering cutting the bank’s super-light policies.
In particular, Powell pointed out that once the effects of the pandemic were eliminated, unemployment was almost 10% compared to the reported 6.3% and therefore a long way from employment.
As a result, Powell called for a “society-wide commitment” to reduce unemployment, which analysts saw as strong support for President Joe Biden’s $ 1.9 trillion stimulus package.
Indeed, Westpac economist Elliot Clarke estimated that more than $ 5 trillion in cumulative stimulus, worth 23% of GDP, would be needed to repair the damage caused by the pandemic.
“Historical experience provides a strong justification for acting against unwanted inflationary pressures once they have been seen, after full occupation,” he said.
“To this end, financial conditions are expected to remain extremely favorable for the US economy and global financial markets in 2021 and probably until 2022.”
The mix of bottomless Fed funds and a softened inflation report was a remedy for bond market pain, leaving 10-year yields at 1.12% from a high of 1.20% earlier in the week.
In turn, it weighed the US dollar, which fell to 90,395 on a basket of currencies and surpassed a top of 91,600 in 10 weeks reached at the end of last week.
The dollar fell to 104.57 yen from a recent high of 105.76, while the euro rallied to $ 1.2122 from its low of $ 1.1950.
In commodity markets, gold was marginalized to $ 1,838 an ounce as investors took platinum to a six-year high on bets with higher demand in the auto sector. [GOL/]
Oil prices have taken a breather after enjoying the longest series of gains in two years amid producer supply cuts and hopes vaccine launches will lead to a recovery in demand. [O/R]
“Current price levels are healthier than the real market and depend entirely on supply cuts, as demand has yet to recover,” warned Rystad Energy’s Bjornar Tonhaugen.
In the long run, Brent oil returned 40 cents to $ 61.07, while US crude oil fell 36 cents to $ 58.32 a barrel.
Additional reporting by David Henry in New York; Editing by Lincoln Feast and Sam Holmes