ASIA MARKETS: Shares, Currencies Mixed; Treasury Yields Rise Further

Wednesday,   20-Oct-2021   09:53 AM (IST)

Asian shares were trading mixed amid a slight pullback in U.S. futures and a pickup in Treasury yields. Shares in China were down 0.2% and Hong Kong stocks were up about a percent. South Korean equities inched lower while Japan’s and Singapore’s indexes were a tad higher. Futures on the S&P 500 Index dropped after the gauge yesterday clocked its fifth daily advance. The FTSE Bursa Malaysia KLCI Index dropped 0.2% to 1,603.20. RHB Bank and Genting Malaysia were the top losers while Public Bank outperformed. Regional equities struggled for direction amid the 10-year U.S. yield reaching 1.66%, the highest level since May. Treasury yields, both the near tenure and long tenure, have climbed over the last one month amid uncertainty over the inflation outlook and the high likelihood that the Federal Reserve will begin dialing back its bond purchases this month. The increase in U.S. borrowing cost has come alongside rising energy prices and persistent supply bottlenecks that have pushed up inflation expectations. The U.S. inflation expectations over the next decade have climbed to 2.54% from under 2.3% about four weeks back. There has been increased debate around inflation and a few central bankers have acknowledged that the current jump in prices may last longer than expected, requiring a shift in the monetary policy. The Bank of England’s head, over the weekend, said interest rates would need to rise to tame inflation expectations. Forecasts on when the BoE is likely to raise interest rates have changed considerably in recent weeks and traders now expect the central bank to raise the rates either next month or December. A shift away from the accommodative stance by major central banks amid inflation worries poses a threat to the outlook for Asian currencies and equities. So far, regional assets have held up well in the face of a likely Fed taper. Asian currencies, like equities, struggled for direction. The South Korean won was little changed, the Malaysian ringgit advanced, and the Chinese yuan dropped after surging 0.6% yesterday to its highest in four months. The dollar index was almost flat at just above 93.70.