Shares in Asia on Tuesday were mixed with investors weighing Chinese measures to support the economy and the prospect of faster Federal Reserve policies to fight inflation.
Shares were higher in Japan and South Korea, while Hong Kong fell and China faltered as investors assessed measures to tackle headwinds in the economy from Covid-led lockdowns. US futures rose after equities ended slightly changed in thin trading on Monday.
Government bond yields fell after the long end fell on Monday. St. Louis Fed President James Bullard said rate hikes of 75 basis points – although not the base case – should not be ruled out as the central bank needs to move fast to fight inflation. Australian bond yields rose.
The dollar had an advance. The yen is in the middle of the longest losing streak in at least half a century. The oil returned some of its overnight gains.
Treasury yields are around the highest for more than three years, while investors discuss whether inflation is peaking. A jump in energy costs highlighted price concerns as US natural gas prices rose to the highest intraday level in more than 13 years.
Interruptions in supply chains from China’s shutdowns and goods flows from the war keep upward pressure on prices at a time when global growth is tipped to slow down. The World Bank lowered its forecast for global economic expansion this year on Russia’s invasion of Ukraine.
“Yield increases have often meant problems for equities, but we believe the past is an imperfect guide in a world shaped by supply shocks,” BlackRock Investment Institute strategists led by Wei Li, global investment strategist, said in a note. “We see that the central banks are normalizing quickly – but are not slowing down the economy. This should keep real returns low and support stock valuations. “
In China, markets are also awaiting the release of prime interest rates on loans on Wednesday, after the People’s Bank of China on Friday reduced the reserve ratio for most banks but refrained from lowering interest rates.
“The reluctance to loosen monetary policy further before Covid is under control means that market sentiment is likely to remain gloomy in the coming weeks,” the Gavekal Dragonomics team wrote in a note on Monday. “But, stocks will rise even harder if lockdowns lift and politicians begin to compensate for lost growth with further easing measures.”
Meanwhile, Ukrainian President Volodymyr Zelenskiy said on Monday that Russian forces had begun the campaign to conquer the Donbas region in eastern Ukraine, while Moscow continues to move troops and materiel into that part of the country.