Joe Biden. File
Asian shares pushed higher on Friday after US President Joe Biden signed a $1.9 trillion stimulus bill into law, and as a retreat in bond yields overnight eased global concerns about rising inflation.
Biden signed the stimulus legislation ahead of a televised address in which he pledged aggressive action to speed vaccinations and move the country closer to normality by July 4.
The signing of the American Rescue Plan provided a further boost to market sentiment after the European Central Bank said it was ready to accelerate money-printing to keep a lid on borrowing costs, using its 1.85 trillion euro Pandemic Emergency Purchase Program (PEPP) more generously over the coming months to stop any unwarranted rise in debt financing costs.
That and a better-than-expected U.S. government bond auction could support a rally in tech stocks and a rotation between growth and value stocks in the next few weeks, said Cliff Zhao, chief strategist at China Construction Bank International in Hong Kong.
“But in the second quarter the market still (will be) very volatile, and especially when we look at the U.S. dollar it’s much stronger than expectations around the end of last year. So I think the strong U.S. dollar may weigh on some liquidity conditions in the emerging markets,” he said.
MSCI’s broadest gauge index of Asia-Pacific shares outside Japan gained 0.45% on Friday morning, supported by tech gains.
Seoul’s KOSPI added 1.12%, Taiwan shares were up 0.21% and Australia’s ASX 200 gained 0.85%.
Japan’s Nikkei rose 0.99%, but China’s blue-chip CSI300 index lost 0.43% as that country’s high-valuation tech and consumer firms dragged.
US Treasury yields were higher on Friday, with the 10-year yield at 1.5405% after falling to 1.475% overnight, its first foray below 1.5% in a week.
The German 10-year yield was last at -0.331% after hitting a three-week low of -0.367%.
“There might be some disappointment (the ECB) didn’t expand their bond purchase program but that’s largely offset by undertakings to accelerate the purchases,” said Michael McCarthy, chief markets strategist at CMC Markets.
On Wall Street, easing inflation worries helped support equities. The Dow Jones Industrial Average rose 0.58% and the S&P 500 gained 1.04%, both to record highs. The Nasdaq Composite added 2.52%.
Sentiment was also boosted by weekly jobless claims data, which pointed to a recovering U.S. labor market as vaccine rollouts helped lead to economic reopenings.
Analysts largely expect inflation to pick up as vaccine rollouts lead to a reopening, but worries persist that Biden’s stimulus package could overheat the economy.
The dollar gained 0.22% against the yen to 108.73 and the euro fell 0.1% on the day to $1.1975. The dollar index, which tracks the greenback against a basket of six major rivals, edged up to 91.488.
Oil prices retreated from sharp gains as the dollar firmed, with U.S. crude dipping 0.3% to $65.82 a barrel. Brent crude lost 0.24% to $69.46 per barrel.
Spot gold prices were little-changed, up less than 0.1% at $1,722.40 an ounce.
Oil hovered near $70 a barrel on Friday, supported by production cuts by major oil producers and optimism about a demand recovery in the second half of the year.
Benchmark Brent fell 14 cents, or 0.2%, to $69.49 a barrel by 1321 GMT while U.S. West Texas Intermediate crude was at $65.90 a barrel, down 12 cents, or 0.01%.
Brent is on track to end the week flat after prices touched a 13-month high on Monday, following seven straight weeks of gains.
The Organization of Petroleum Exporting Countries forecast a stronger oil demand recovery this year, weighted to the second half. OPEC, Russia and its allies decided last week to maintain its output curbs almost unchanged.
“The stronger-than-expected rebound in the second half of this year implies that the global economy and hence oil demand outlook is close to shaking off its COVID woes,” PVM analysts said.
RBC Capital analysts said the fundamentals for summer gasoline was the most bullish in nearly a decade.
The United States, world’s largest oil consumer, saw a big draw on U.S. gasoline stocks last week as the winter storm in Texas disrupted refining output.
Sustained higher oil prices are expected to encourage U.S. producers to increase output, which could eventually weigh on prices, JP Morgan analysts wrote.
JP Morgan expects U.S. oil output to average 11.36 million bpd this year compared with 11.32 million bpd in 2020.
World shares dipped on Monday as the US Senate’s passage of a $1.9 trillion stimulus bill put fresh pressure on Treasuries and tech stocks with lofty valuations, raising inflation jitters.
The aid package includes $415 billion to bolster the response to the virus and the rollout of COVID-19 vaccines, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities particularly hard hit by the pandemic.
Stocks rebounded on Tuesday, with Washington’s approval of an $892 billion pandemic relief package helping them recover some of the losses caused by fears over a highly infectious new strain of COVID-19.
President Joe Biden assured Americans on Friday that the US economy is chugging along in the holiday season, but the very strength of a new jobs report showed that high inflation remains a recession threat.
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