Market Catch Up
• Asian shares and stock futures rose this morning, in tune with the small rise on Wall Street yesterday, following the Federal Reserve's decision to maintaining an accommodative monetary policy, at least for 2021, and their projection of a rapid jump in US economic growth this year as the Covid-19 crisis eases and new daily cases in the country continue to decline.
• Gains in Asia were led by the Hang Seng, which rose by 1.55%, followed by a 1% increase in the Nikkei. The KOSPI and the CSI300 were up by 0.65% and 0.50% respectively, while the ASX was down 0.56%.
• At the same time, the US500 was 0.10% in the green and the DAX was up 0.30%, both reducing gains compared to earlier in the morning. Yesterday, the S&P 500 closed at a record high on Wednesday and the Dow Jones Industrial Average closed above 33,000 points for the first time.
• As reported by the Fed, inflation is expected to reach 2.4% this year, above the central bank’s 2% target. However, Fed Chair Jerome Powell called it a temporary surge that will not change the Fed’s pledge to keep its benchmark overnight interest rate near zero.
• Long-term Treasury yields remained elevated and the yield curve steepened as bond investors chose to focus more on rising inflation expectations. The 10-year Treasury edged up to 1.6639%, not far from the highest since January last year.
• The spread between two-year and 10-year US yields, also known as the yield curve, rose to 155 basis points, which is the steepest since September 2015.
• At the same time, the 10-year inflation breakeven rate hit 2.309%, which shows that inflation expectations are at the highest since January 2014.
• On the plus side, the Fed projected the U.S. economy would grow by 6.5% this year - the largest annual output growth since 1984 - thanks in part to massive federal fiscal stimulus and optimism around the success of coronavirus vaccines. Analysts note that this is the first time that the US is expected to grow by more than China.
• The Fed's response made some suggest that since it is not going to tighten, things appear very bullish for risky assets, with other suggesting that a rally in Asian assets and currencies can be expected.
Currencies and Commodities
• The yen erased losses and government bond yields briefly rose after a media report that the Bank of Japan will agree to allow 10-year bond yields to trade up to 0.25% above or below zero, a slightly wider band than the plus or minus 0.25%. The Yen was last at 108.94 per dollar.
• The Australian dollar jumped to a two-week high of $0.7835 after data showed the nation’s economy created more than twice as many jobs as expected in February.
• The euro eased to $1.19655, but was hovering close to its one-week high of $1.19900 after rallying 0.6%, while the British pound traded at $1.3946, having gained about 0.5% overnight. The Bank of England is expected to keep its benchmark Bank Rate at a historic low of 0.1% and its bond-buying programme unchanged at 895 billion pounds later in the day.
• Oil futures extended declines, weighed down by US crude inventories rising by 2.4 million barrels, and by expectations of weaker demand in Europe, where the coronavirus vaccine roll out is not doing so good.
• Brent crude fell 0.63% to $67.57 per barrel, and WTI crude declined by 0.57% to $64.23, also helped by EIA's forecast that peak gas has already been hit.
• Gold rose 0.35% to $1,748 per ounce as the Fed’s pledge to keep rates low and worries about inflation pushed the world's favorite yellow metal higher.
• In Europe, the BoE decision and a speech by ECB Chairwoman Lagarde mark the important developments of the day, even though no changes are expected.
• In the US, the Philly Fed manufacturing index is seen to have eased a bit, while jobless claims are set to have continued their downwards movement over the previous week.