HONG KONG – Asian markets rallied on Thursday ahead of US inflation data and the European Central Bank meeting, while traders also tracked China-US relations after Joe Biden backed out of Trump’s attempt to ban TikTok and WeChat.
With the global economy undergoing a sharp recovery from last year’s virus-fueled collapse, investors are generally in high spirits, expecting stocks to continue to rally thanks to re-openings, vaccinations, government stimulus and massive central bank support.
However, this optimism is dampened by fears that the rebound will trigger a spike in inflation that will force banks – especially the Federal Reserve – to wind down their ultra-weak programs earlier than previously noted, despite constant assurances that they will not.
The release on Thursday of the May CPI is now crucial as it warns that a large upside miss of 4.7 percent will strengthen expectations for a tightening of policy.
Nonetheless, observers say the trading floors have been a little quieter lately, as investors believe the rally will be temporary due to a lower base from last year and skyrocketing commodity prices.
The yield on 10-year US Treasuries – a key indicator of future interest rates – fell again on Wednesday.
“Even if inflation turns out to be slightly higher than … expectations, the Fed will not change its course,” Esti Dweck of Natixis Investment Managers told Bloomberg TV.
“There is a lot of waiting and we just think it will take a long time to really surprise the markets.”
The European Central Bank is expected to maintain its easy money policy for now, although its post-meeting statement will address its plans as the recovery develops.
Sino-American relations in sight
After another weak leadership of Wall Street, Asia continued to move up.
Tokyo, Hong Kong, Sydney, Singapore, Seoul, Taipei, and Jakarta were all in positive territory, while Wellington and Manila remained virtually unmoved.
“The bond market is convinced that inflation will be transient and that the Fed will not stop buying assets this year,” said Edward Moya of OANDA.
“The inflation data will not change the Fed’s opinion on inflation, but the hot data may help set a tentative cap on Treasury yields.”
Traders have been monitoring relations between Beijing and Washington after Biden’s decision to overturn Donald Trump’s executive order on China’s TikTok and WeChat mobile apps.
The former president signed the measure, claiming they posed a threat to national security and trying to force the sale of TikTok to American investors, which worsened the already frigid relations between the superpowers.
But the Biden administration said it would conduct “criteria-based decision-making structure and rigorous evidence-based analysis to mitigate risks” from Internet applications controlled by foreign organizations.
Meanwhile, trade representatives of the two countries discussed trade and investment ties.
Chinese Commerce Minister Wang Wentao and his counterpart Gina Raimondo “agreed to promote the healthy development of pragmatic cooperation in trade and investment” during a telephone call on Thursday.
The talks began after Vice Premier Liu He held talks with US Trade Representative Catherine Tai and then with Treasury Secretary Janet Yellen.
Markets are also gearing up for this weekend’s G-7 Summit in England, which marks Biden’s first trip overseas as President of the United States.
Key numbers at 03:00 GMT
Tokyo – Nikkei 225: 0.4% rise to 28,982.70 (gap)
Hong Kong – The Hang Seng Index: up 0.4% to 28,865.72
Shanghai – Composite: up 0.7% to 3,616.30
Euro / Dollar: DOWN $ 1.2167 from $ 1.2177 at 20:30 GMT.
Pound / dollar: climbed $ 1.4115 from $ 1.4112.
Euro / lb: 86.20p DOWN from 86.29p.
Dollar / yen: DECREASE 109.57 yen from 109.63 yen
West Texas Intermediate: DECREASE 0.8 percent to $ 69.41 a barrel.
Brent North Sea crude: DECREASE 0.8 percent to $ 71.65 a barrel
New York – Dow: DECREASE 0.4 percent to 34,447.14 (close)
London – FTSE 100: down 0.2% to 7,081.01 (close)
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