SYDNEY, RAW – Asian shares have slipped as global inflation angst favoured commodities as a hedge over US equities, while rising US bond yields lifted the US dollar to two-and-a-half year peaks against the Japanese yen
Nasdaq futures and S&P 500 futures were both down around 0.5 per cent in early trade, as oil prices extended their bull run.
“Bond yields continue to push higher, inflation expectations are rising and monetary tightening in various guises is becoming more prevalent,” said ANZ analysts in a note.
“The global chips shortage will extend well into next year, adding further uncertainty to uneven recoveries,” they said.
“Add in energy shortages, and the economic landscape is materially more sober than the optimism that accompanied the early stages of global recovery.”
MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2 per cent, and Australia 0.9 per cent. Japan’s Nikkei lost 0.5 per cent, after shedding 2.5 per cent last week.
The earnings season kicks off this week and is likely to bring tales of supply disruptions and rising costs.
JPMorgan reports on Wednesday, followed by BofA, Morgan Stanley and Citigroup on Thursday, and Goldman on Friday.
The focus will also be on US inflation and retail sales data, and minutes of the Federal Reserve’s last meeting which should confirm a November tapering was discussed.
While the headline US payrolls number on Friday disappointed, it was partly due to reopening problems in state and local education, while private sector employment was firmer.
Indeed, with a lack of labour driving the jobless rate down to 4.8 per cent, investors were more concerned about the risk of wage inflation and pushed Treasury yields sharply higher.
Yields on 10-year notes were trading up at 1.61 per cent, having jumped 15 basis points last week in the biggest such rise since March.
Bonds also sold off in Asia and Europe, with short-term yields in Britain hitting their highest since February 2020.
Analysts at BofA warned the global inflationary pulse would be aggravated by energy costs with oil potentially topping $US100 a barrel amid limited supply and strong re-opening demand.
The winners in such a scenario would be real assets, real estate, commodities, volatility, cash, and emerging markets, while bonds, credit and stocks would be affected negatively.
BofA recommended commodities as a hedge and noted resources accounted for 20-25 per cent of the main equity indices in the UK, Australia and Canada; 20 per cent in emerging markets; 10 per cent in the Eurozone, and only 5 per cent in the United States, China and Japan.
The US dollar was underpinned as US yields outpaced those in Germany and Japan, lifting it to its highest since April 2019 on the yen at 112.27.
The euro hovered at $US1.1566, having reached the lowest since July last year at $US1.1527 last week. The US dollar index held at 94.158, just off the recent top of 94.504.
The firmer US dollar and higher yields has weighed on gold, which offers no fixed return, and left it sidelined at $US1753 an ounce.
Oil prices were up again after gaining 4 per cent last week to the highest in almost seven years.
Brent climbed 25 cents to $US82.64, while US crude rose 41 cents to $US79.76 per barrel.