Asian Stocks Steady After Sell-Off

Asian stocks managed to steady after reaching two-week lows on Tuesday with investors pausing to take a breather after a heavy sell-off during the recent sessions, waiting to see if the rally on the dollar was sustainable.

The FTSE futures gained 0.2 percent with spreadbetters pointing to a higher opening in Europe. Meanwhile, Wall Street also perked up, with the e-minis for S&P 500 rising 0.3 percent.

MSCI’s broadest index of Asia-Pacific shares excluding Japan swelled 0.1 percent after two consecutive days of slumps that sent it tumbling to its lowest since April 9.

Japan’s Nikkei 225 gained 0.9 percent with a lower yen boosting export-heavy businesses.

Meanwhile, Chinese shares gained 1.9 percent. Hong Kong’s Hang Seng index jumped 1 percent.

US bond prices also increased, bouncing off from four days of losses that sent 10-year Treasury yields nearer to the key psychological barrier of 3 percent, which is a level that has not been reached since the early part of 2014.

The US dollar has jumped higher in the past five sessions against a basket of six other major rival currencies. Even so, it also took a pause and steadied near a four-year high.

“Investors are now watching closely to see if we are in the eye of the recent storm of volatility or if we do have calm seas ahead leading to stronger global growth,” said Nick Twidale, who is a Sydney-based chief operating officer at Rakuten Securities Australia.

“Only time will tell but certainly the market is keeping a close eye on the news wires and screens for anything that may lead to a return of volatility and downside risk,” he added.

The bond market is seen as currently preparing for the combined sales of $96 billion in coupon-bearing Treasuries this week due to greater government borrowing after a massive tax overhaul last year and a budget agreement on February.

Inflation worries are also increasing with oil and commodity prices rising during the recent weeks.

Moreover, the market measures for investors’ expectations on inflation, like the 5-year forward inflation swap and 10-year breakeven yield, have reached their highest levels in several months.

These have sparked concerns that the US inflation, which has been subdued long after the financial crisis a decade ago, could gain momentum with US President Donald Trump’s tax cuts this year. The said tax cuts could potentially stimulate the US economy that is already near full employment.

During these scenarios, the Federal Reserve could raise rates more than three times in one year in another blow to equities.

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