Asian stocks rally as China retreats, rising US yields weigh

SYDNEY, March 2 (Reuters) – A rally in Asian stocks exploded on Thursday, under pressure from a decline in Chinese stocks and a rise in U.S. yields amid fears that global central banks will continue to raise rates of interest to combat persistent inflation.

MSCI’s broadest non-Japan Asia-Pacific equity index (.MIAPJ0000PUS) lost 0.3%, reversing some of the previous session’s 2.1% gain – the index’s best day in two month. The Japanese Nikkei (.N225), on the other hand, fell 0.2%.

Hong Kong’s Hang Seng Index (.HSI) fell 1.0%, after posting the biggest daily gain of 4.2% in nearly three months the previous day, supported by surprisingly robust PMI survey readings Chinese.

Investor enthusiasm has faded somewhat over China’s economic reopening after Beijing dismantled its strict COVID-19 controls in December, as analysts seek more evidence to gauge the pace of economic recovery. .

US futures erased earlier gains, with S&P 500 stock futures falling 0.5% and Nasdaq futures 0.7%.

Tesla shares (TSLA.O) fell 5.5% in after-hours trading after Tesla Investor Day failed to excite investors. The company will cut vehicle assembly costs in half in future generations of cars, engineers told investors.

“Financial markets are caught between the two stories of a soft landing, aided by the reopening of China, and persistent inflation keeping policy rates higher for longer,” said Chris Turner, global head of markets. at ING.

“This will likely keep bond markets down and volatile currency markets in ranges.”

Overnight, bonds and equities were hit hard as inflation indicators in Germany and the United States bolstered expectations that interest rates would rise and stay there longer.

Overnight data showed no letup in stubborn price pressures in Germany, after Spain and France posted unexpected inflation rises on Tuesday. Germany’s 2-year government bond yield hit its highest level since October 2008.

In the United States, manufacturing activity contracted for a fourth consecutive month in February, but a gauge of commodity prices rose last month, fueling concerns about lingering inflation.

“Manufacturing PMI data provides a mixed message on global risk appetite, with improving positive growth trends but stalling producer price declines,” said Alan Ruskin, macro strategist at Deutsche Bank. .

“In general, developed markets tend to be less balanced than emerging markets, as growth is weaker and inflation more sticky.”

On Thursday, benchmark 10-year Treasury yields hit a new four-month high at 4.0160%, after hitting 4% overnight. Two-year yields also rose to 4.9080%, a new 15-year high.

Investors still expect the Fed to raise rates by 25 basis points at its next meeting later this month, but expectations of a bigger 50 basis point hike have risen. The likelihood that the Fed’s key rate, currently set between 4.5% and 4.75%, could peak above the 5.5% range stood at 53%, down from 41.5% on the 28th. February, according to the CME tool Fed.

Minneapolis Fed Chairman Neel Kashkari said he was inclined to ‘raise my policy trajectory’ after a recent government report showed the Fed’s preferred inflation index accelerated. in January at an annual rate of 5.4%, more than double the Fed’s 2% target and slightly faster than the previous month.

In currency markets, the US dollar index, measuring the value of the greenback against a basket of major peers, gained 0.2% to 104.6.

The euro lost 0.2% to $1.0646, reversing part of a 0.8% gain overnight, as higher-than-expected German inflation added to pressure on the European Central Bank to raise rates.

In the crypto world, shares of Silvergate Capital (SI.N) fell 28% after the cryptocurrency-focused bank said it was delaying its annual report and assessing its ability to operate as a business in operation.

Oil prices were largely flat on Thursday, after rising 1% the day before on optimism about China’s recovery. US crude held steady at $77.67 a barrel. Brent was virtually unchanged at $84.34 a barrel.

Gold was slightly lower. Spot gold was trading at $1,832.53 an ounce.

Reporting by Stella Qiu; Editing by Simon Cameron-Moore

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