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Asia Optimistic for Extended Bull Run

February 17, 2021

Despite the quiet Lunar holiday period in much of Asia, shares advanced during Tuesday’s session, putting world equities on course to extend their bull run for a 12th consecutive session as optimism over global economic recovery and expectations that low interest rates will drive investors towards more riskier assets.

Oil prices climbed to a 13-month high after demand spiked due to a severe snowstorm in the United States, also threatening oil production in Texas. U.S. crude futures traded up 1.1% at $60.11 per barrel. Prices have rallied over recent weeks on tightening supplies, largely due to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the wider OPEC+ group of producers. Rising oil prices supported commodity-linked currencies such as the Canadian dollar while safe-haven currencies including the U.S. dollar took a back seat.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.45% while Japan’s Nikkei rose 0.4% to a 30-year high. In Hong Kong, the Hang Seng Index surged 1.79% to hit a 32-month high in its first trading session since Thursday following the Lunar New Year holidays. Mainland Chinese markets will remain closed for the holidays until Thursday while Wall Street was also shut on Monday.

Ord Minnett advisor John Milroy said while share markets were positive investors were becoming wary of the future risk of inflation due to central bank and government stimulus programmes in place around the world.

“There is a clear sense with rates staying low for some time yet and investor appetite for equities staying strong, we will likely see markets hold up for some time yet” Milroy said.

“Gaining traction is the thought that inflation could rise much faster and sooner than the Fed is currently thinking. Then if they do raise rates to combat it what happens to equity markets and of course bond markets.”

The bullish view on the economy lifted bond yields, with the 10-year U.S. Treasuries gained 5 basis points to 1.245% in early Asian trade, its highest since late March.

Investors are looking to the minutes from the U.S. Federal Reserve’s January meeting, due to be published on Wednesday, for confirmation of its commitment to maintain its dovish policy stance over the near future. That in turn is set to limit bond yields. Some analysts say investors should keep a wary eye on bond yields.

“If U.S. bond yields keep rising, that could start to unsettle stocks,” said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management.
S&P500 futures traded 0.65% higher to a record level and MSCI’s all country world index (ACWI), which has risen every single day so far this month, ticked up slightly.

U.S. President Joe Biden is pushing ahead with his plan to pump an extra $1.9 trillion in stimulus into the economy, in a further boost to market sentiment. GBP/USD held firm at $1.3910 , staying at its highest levels since April 2018.

The offshore Chinese yuan hit a 2-1/2-year high of 6.4010 per dollar overnight and last stood at 6.4030 MSCI’s emerging market currency index hit a record high as well.

The USD/JPY weakened to ¥105.36, edging closer to its four-month low of 105.765 set on Feb. 5. while the EUR/USD was up 0.1% at $1.2142.
Bitcoin was trading at $48,088.28, lower than its record high of $49,715 hit on Sunday.

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