Written by Wayne Cole
SYDNEY (Reuters) – Asian stocks settled at record levels on Thursday as investors digested the recent meaty gains, while bulls kept the promise of endless free money after a benign reading of US inflation and a pessimistic outlook for the Federal Reserve.
Adding to the torpor was a lack of liquidity as markets in China, Japan, South Korea and Taiwan were all on holiday.
The MSCI’s broadest index of Asia-Pacific stocks outside of Japan added 0.1%, after having already climbed for four sessions, reaching more than 10% so far this year.
It was closed after closing at its highest level in 30 years on Wednesday, while the main index settled in Australia near its highest level in 11 months.
With China emerging, there was little reaction to news that the Biden administration would consider adding “new target restrictions” on some sensitive technology exports to the Asian giant and would keep tariffs on for now.
Futures on the Nasdaq and Nasdaq exchanges were flat, after hitting record highs on Wednesday. EUROSTOXX 50 futures and futures barely budge.
However, expectations for more global stimulus got a big boost overnight from the surprisingly weak reading of core US inflation, which fell to 1.4% in January.
Fed Chairman Jerome Powell said he wanted to see inflation reach 2% or more before even considering curtailing the bank’s too easy policies.
Notably, Powell stressed that once the epidemic impacts were removed, unemployment was closer to 10% than the 6.3% reported, and thus far from full employment.
As a result, Powell called for a “community level commitment” to reduce unemployment, which analysts viewed as a strong support for President Joe Biden’s $ 1.9 trillion stimulus package.
In fact, Westpac economist Elliott Clark estimated that more than $ 5 trillion in cumulative stimulus, worth 23% of GDP, will be required to repair the damage the pandemic has done.
“Historical experience provides a strong justification to act only against unwanted inflationary pressures once they are seen, after achieving full employment,” he said.
To this end, financial conditions are expected to remain highly supportive of the US economy and global financial markets in 2021, and most likely until 2022. “
The mix of borderless Fed funds and the tame inflation report was an ointment for the bond market pains, leaving 10-year yields at 1.12% from a high of 1.20% early in the week.
This in turn affected the US dollar, which fell to 90.395 in a basket of currencies and away from a 10-week high of 91.600 which it touched late last week.
The dollar fell to 104.57 yen from its recent high of 105.76, while the euro rose to $ 1.2122 from its lowest level at $ 1.1950.
In commodity markets, gold was sidelined at $ 1,838 an ounce as investors led platinum to a six-year high on bets on increased demand from the auto sector. [GOL/]
Oil prices are taking a breather, after enjoying the longest winning streak in two years amid supply cuts from producers and hoping the vaccine launch will lead to a recovery in demand. [O/R]
Bjornar Tonhaugen of Rystad Energy warned: “Current price levels are better than the actual market and totally dependent on supply cuts, as demand still needs to recover.”
Futures slipped 40 cents to $ 61.07, while 36 cents fell to $ 58.32 a barrel.