Asian stocks soar as inflation concerns ease after US report

Asian stocks extended their rebound from a two-month low on Thursday after a report on United States consumer prices calmed concerns about inflation and lifted the Dow Jones Industrial Average to a record close.

An index of regional stocks excluding Japan rose 1.7 percent, led by a 2.3 percent surge in South Korea’s KOSPI, and was on track for its first three-day advance in three weeks.

China’s Shanghai Composite rallied 1.9 percent and the CSI 300 index rallied 2.5 percent, the most in about two months, helped by strong local lending data. Japan’s Nikkei 225 gained 0.5 percent. E-mini futures for the United States’s S&P 500 Index rose 0.5 percent suggesting gains at the open of trading in New York.

Relative calm in US Treasuries also emboldened investors to return to the stock market, with the yield on the benchmark 10-year US government bond settling at about 1.5 percent after shooting to a one-year high above 1.6 percent last week as investors worried about the US economic recovery running too hot.

“The market took a bit of relief from this consolidation in rates,” said Masahiko Loo, a Tokyo-based portfolio manager at investment firm AllianceBernstein.

“The vaccine optimism is still there. People are coming back into the workforce. If you add everything up – and the bond market is not being disruptive – it’s providing more incentive for investors to buy equities.”

European markets looked set to continue the global rally with Euro Stoxx 50 futures 0.2 percent higher after the index touched a more than one-year high on Wednesday.

The European Central Bank sets its policy on Thursday and is likely to signal faster money printing to keep a lid on borrowing costs, although it will likely stop short of adding firepower to its already aggressive pandemic-fighting package.

The United Kingdom’s FTSE futures rose about 0.4 percent. MSCI’s gauge of stocks across the globe gained 0.28 percent.

The US Department of Labor said its consumer price index rose 0.4 percent in February, in line with expectations, after a 0.3 percent increase in January. The core consumer price index, which excludes volatile food and energy prices, edged up 0.1 percent, just shy of the 0.2 percent estimate.

While analysts largely expect a hike in inflation as vaccine rollouts lead to a reopening of the economy, worries persist that additional stimulus in the form of a $1.9 trillion coronavirus relief package set to be signed by US President Joe Biden could overheat the economy.

Investors will now keep an eye on the auction of 30-year government debt on Thursday. A weakly received seven-year auction in late February helped fuel inflation concerns and sent yields higher.

“Rises in US bond yields appear to have subsided a bit after the 10-year yield has reached 1.5 percent, even though many investors remain cautious before the [Federal Reserve’s] policy meeting,” said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

A K-shaped recovery

“The Fed has ratcheted up its rhetoric on bond yields lately. The reality is, the economy is in a K-shaped recovery, with the service sector still in difficult conditions and the Fed would probably not want to let real interest rates rise.”

The US dollar remained weaker following the economic data.

The dollar index – a gauge of the currency against its most widely traded peers – was almost unchanged at 91.813, following a 0.2 percent drop overnight.

The euro stood at $1.19265 while the safe-haven Japanese yen eased to 108.685 per dollar.

Oil prices resumed their climb following two days of declines, after the US Energy Information Administration reported a bigger-than-expected storage build-up.

US crude futures stood at $64.97 per barrel, up 53 cents or 0.81 percent. Brent crude futures were at $68.45 per barrel, up 55 cents or 0.8 percent.