Asia open: A pause in the bond market rout

Stephen Innes SPI Asset Management

Thursday brings a detente in the global bond market rout amid signs of stabilization on Wall Street and a modest dollar softening. These factors are expected to lend a helping hand to Asian risk markets as investors shift their focus to U.S. Treasury Secretary Janet Yellen's visit to China.

As investors eagerly await Friday's Non-Farm Payrolls (NFP) report, policymakers are taking center stage. Federal Reserve Chair Jerome Powell reiterated on Wednesday that the Fed has the luxury of time to decide when to implement its first rate cut. Powell also emphasized that it is premature to determine whether the recent surge in inflation is merely transitory or signals a more sustained trend, giving a nod to the 3-cut dot plot.

Still, the recent erosion of expectations for rate cuts in the United States has started to exert pressure on both bond and stock markets globally. Markets no longer fully anticipate a rate cut in June or foresee a total of 75 basis points of easing this year. This expectation shift has led to unease among investors, contributing to worldwide volatility in bond and equity markets.

However, Powell's remarks did not exacerbate market concerns further. Additionally, ISM serviced data, where sticky inflation has been hanging out, indicated that price pressures in the sector eased significantly last month, toppling the dollar to its most significant decline in a month. These factors are expected to support Asian stocks on Thursday, allowing them to make up some ground from losses incurred in the previous trading session.

Yellen's arrival in China coincides with mounting evidence suggesting that the economy may gradually emerge from its post-lockdown doldrums. The latest services PMIs further reinforce this optimistic looking-glass view.

China's tentative recovery also contributes to the ongoing surge in global commodity prices. On Wednesday, oil prices edged closer to $90 a barrel, while Doctor Copper, a reliable leading indicator of economic health, reached a 13-month peak. Additionally, gold prices hit yet another record high amidst the backdrop of a whole lot of market uncertainty.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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