Asia Pacific investors face a conundrum today. Do they follow the lead of the reflation inspired surge in European stocks and the Dow Jones Industrial Average, or will tumbling tech stocks dominate today’s session? A stronger US dollar and ongoing pressure on bond markets may see regional markets defy the positive leads from overnight futures trading.
The German Dax index hit a new all-time high overnight, as did the Dow Jones. In contrast, the Nasdaq 100 index fell 2.4%, and is now down 11% from its February high. The moves are driven by rotation from Covid high flyers to the beneficiaries of re-opening. The action indicates continuing confidence in economic recovery, and is backed up by the stronger US employment market and surging China trade data.
This confidence is also the key driver of higher interest rates. Treasury Secretary Yellen joined the chorus of global central bankers trying to dampen inflation expectations, to little effect. US ten year bonds are now offering a yield of 1.6%, sufficiently attractive to bolster the currency. The US dollar was also supported by pressure on the Euro ahead of Thursday’s European Central Bank meeting.
Undertakings from ECB officials to continue to support the European economy have led to speculation that the bank will expand its bond buying operations at this meeting.
Crude oil dropped for the first time in 4 sessions after US officials declared they would help defend Saudi Arabian infrastructure if it came under sustained attack. A concerted effort by Houthi rebels to disrupt and destroy with drones and missiles had little impact, but the escalation in hostilities rattled oil traders yesterday.