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Asian stocks join global rally after Ukraine-Russia talks

Asian stocks join global rally after Ukraine-Russia talks

A man stands on an overpass with an electronic board showing Shanghai and Shenzhen stock indices, at Lujiazui financial district in Shanghai, China January 6, 2021. REUTERS/Aly Song//

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HONG KONG, March 30 (Reuters) – Asian stocks joined a global rally on Wednesday as hopes for a negotiated end to the Ukraine conflict rose, while bond markets signaled concern over the fact that aggressive rate hikes could hurt the US economy after a brief run of 10-year yields. fell below two-year rates.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) rose 1% and touched its highest level since March 4, with most Asian stock markets in positive territory.

Japan’s Nikkei (.N225) however, bucked the trend, falling 1% as observers signaled some profit-taking as the year-end approached. The benchmark hit a two-month closing high on Tuesday.

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Ukraine on Tuesday offered to adopt a neutral status as a sign of progress in face-to-face negotiations, although on the ground reports of attacks continue and Ukraine reacted with skepticism to the promise of the Russia in negotiations to reduce military operations around kyiv. . Read more

Nevertheless, the news helped the Dow Jones Industrial Average (.DJI) and S&P 500 (.SPX) notch their fourth straight session of overnight gains, after European stocks rallied sharply.

US S&P 500 futures were little changed in Asian trading.

“On the one hand, there has been more positive news regarding Ukraine, and the market is hoping for a peace agreement at some point, which translates into a bit of a risk event, with stocks rising and rising bond yields,” said Shane Oliver, chief economist and head of investment strategy at AMP Capital.

“But then it comes back to worrying about inflation and bond yields, and there’s this debate about whether we’re going to see a recession in the United States because of the reversal of some of the U.S. yield curve.”

The widely watched 2-year/10-year U.S. Treasury yield curve briefly inverted on Tuesday for the first time since September 2019, as bond investors bet aggressive tightening by the Federal Reserve could hurt the U.S. economy further. longer term.

Longer-term yields falling below shorter ones indicate a lack of confidence in future growth, and 10-year yields falling below 2-year rates are widely seen as a harbinger of recession.

On the other hand, the spread between the yield of 3-month Treasury bills and that of 10-year Treasury bills remained wider this month.

“The yield curve messages are very confusing,” Oliver said.

The US benchmark 10-year yield was last slightly lower at 2.3815 after hitting 2.557% on Monday, its highest level since April 2019, as traders position themselves for rapid rate hikes by the US Federal Reserve.

The spread between US 10-year and 2-year rates last stood at 2.7 basis points.

JAPAN IN THE SPOTLIGHT

Rising US yields are also dragging Japanese government bond yields in their wake, threatening Japan’s ultra-loose monetary policy.

On Wednesday, the Bank of Japan stepped up its efforts to defend its main yield ceiling by offering to increase purchases of government bonds across the curve, including through unforeseen emergency market operations. Read more

While this apparently underscored his determination to stick with the policy, some analysts have questioned whether the strategy is sustainable.

“I wouldn’t be surprised if the Bank of Japan sets a higher limit for 10-year JBG yields – currently at 0.25%. They cannot afford to be too late on the curve, because if the yen were to weaken beyond certain levels, it could cause fears in the market,” said Joël Le Saux, manager of the Sustainable Japan Equity sub-fund of Eurizon Fund.

The widening gap between US and Japanese yields weakened the yen sharply. On Wednesday morning it stood at 122.36 to the dollar, having rallied slightly from Monday’s low of 124.3, but the dollar was still up 6.9% against the yen this month. -this.

Elsewhere in currency markets, the euro was at $1.1104, buoyed by prospects for peace in Ukraine, after jumping almost 1% overnight.

Tight supply has kept oil prices firm despite hopes raised by Russian-Ukrainian talks, analysts said.

Brent crude rose 1% to $111.36 a barrel. U.S. crude rose 0.83% to $105.12.

Spot gold rose 0.1% to $1,920.6 an ounce.

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Editing by Simon Cameron-Moore

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