Stocks in Asia were mixed Wednesday and bond yields extended their advance amid a debate about the scale of tightening of monetary policy to fight inflation.

Equities climbed in Japan as the yen weakened toward 130 per dollar level. A pullback in technology stocks and reopening challenges were a drag in Hong Kong. Sluggish Chinese manufacturing data and the government’s pursuit of Covid Zero weighed on shares and the yuan. US futures pared gains, while European contracts rose. 

Treasuries extended a decline, pushing 10-year yields closer to 2.9% as traders raised bets on Federal Reserve interest-rate hikes. Euro-zone consumer prices jumped to a record in May, opening the door to more forceful policy action. The dollar advanced against major peers.

Oil traded near $115 a barrel as investors assessed the future of OPEC+ unity, just as ministers from the group prepare to meet on Thursday to discuss its supply policy for July. Crude advanced about 10% in May, stoking inflation worries.

Concerns that central-bank rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility has picked up.

“It’s times like these when investors need a crystal ball,” wrote LPL Financial strategists Jeff Buchbinder and Ryan Detrick. “We fully acknowledge how tough it is to see the bull case for stocks right now, and a retest of recent lows is certainly possible, but this week we lay out the bull case for the second half of the year. It starts with inflation.”

President Joe Biden used a rare meeting with Federal Reserve Chair Jerome Powell to declare that he’s respecting the central bank’s independence - while simultaneously shifting responsibility for taming decades-high inflation ahead of the November midterms. The meeting came ahead of US payroll numbers Friday.

“There are heightened concerns around inflation and where central banks are likely to go trying to combat inflation,” Kristina Hooper, Invesco Advisers chief global markets strategist, said on Bloomberg Radio. “This has gone from just an inflation scare to a growth scare. Uncertainty has grown.”

How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Source:
courtesy of BLOOMBERG

by Andreea Papuc

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