As investors braced for aggressive U.S. rate hikes and war affecting oil supply, gains in banks, energy, and mining sectors boosted Asian shares a bit higher on Tuesday. In Asia, oil futures surged over 3% to a two-week high.
After U.S. Federal Reserve Chairman Jerome Powell signaled a more aggressive tightening of monetary policy than previously expected, the yen plummeted through the important 120 level against the dollar for the first time since 2016, and Treasuries continued losses.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan rose 0.1 percent, boosted by gains in Australia’s miner-and-bank heavy index, which reached a two-month high. The Nikkei 225 index in Japan increased by 1.5 percent. On Tuesday, the benchmark rose for the sixth straight session, set for its biggest winning streak since September, as energy stocks benefited from higher oil prices, while financials benefited from higher global bond yields.
The Euro Stoxx 50 futures slipped 0.5 percent to 3,784 in early European trade. The German DAX futures down 0.45% to 14,302, while the FTSE futures fell 0.05 percent to 7,392. “This really dramatic jump in commodity prices is actually having rather mixed consequences… because we have some major commodity exporters in this region who might potentially profit,” Manishi Raychaudhuri, Asia-Pacific stock strategist at BNP Paribas, explained.
Meanwhile, “investors are adjusting to the assumption that central banks in developed countries will normalize monetary policy,” he said. Powell had provoked a bond sell-off overnight after telling the National Association for Business Economics that the US central bank was willing to go to any length to combat inflation, including larger-than-usual rate hikes if necessary.
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Treasuries and stock futures in the United States were volatile, with the S&P 500 down 0.3 percent and the rate-sensitive Nasdaq 100 down 0.4 percent. By early afternoon in Hong Kong, the benchmark 10-year Treasury yield was at 2.3333 percent, close to the nearly three-year high of 2.3460 percent set earlier in the day.
Fed funds futures now predict a two-thirds possibility of a rate hike of 50 basis points in May. The Japanese yen, which is similarly affected by rising US rates, momentarily dipped below 120 per dollar and was last bought at 120.4. China’s markets, on the other hand, are anticipating policy easing after authorities signaled it last week.
The blue chip index in China fell 0.1 percent, while the benchmark Hang Seng Index in Hong Kong (.HSI) rose 1.2 percent. China Eastern Airlines (600115.SS) shares fell 6.5 percent onshore and 5.8 percent in Hong Kong after the airline’s Boeing 737-800 crashed in the mountains of southern China on Monday, killing all 132 persons on board.
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Tech companies in Hong Kong (.HSTECH) extended their recent rally, driven by Alibaba Group (9988.HK), which gained 9% after expanding its stock buyback program. Meanwhile, the lack of progress in the Russia-Ukraine peace talks weighed on public opinion. Ukraine said on Monday that it would not accept Russian ultimatums after Moscow demanded that it stop defending besieged Mariupol.
The news that certain European Union countries were considering placing penalties on Russian oil, as well as strikes on Saudi oil installations, drove tremors through the market on Tuesday morning. Brent crude is now trading at $118.93 a barrel, up 2.9 percent. Crude oil in the United States rose 2.2 percent to $114.76 a barrel.
In other currency markets, the euro was down 0.2 percent on the day at $1.0987, after losing 2.07% in a month, while the dollar index, which measures the greenback against a basket of other key trading partners’ currencies, was up at 98.778. At $1934.63 per ounce, gold was marginally lower.