Asia sets up global stocks for extended bull run on economic optimism

Asian shares advanced on Tuesday, putting world equities on course to extend their bull run for a 12th consecutive session as optimism about the global economic recovery and expectations of low interest rates drive investments into riskier assets.

Oil prices soared to a 13-month high as a deep freeze due to a severe snow storm in the United States not only boosted power demand but also threatened oil production in Texas.

MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.45% while Japan’s Nikkei rose 0.4% to a 30-year high.

In Hong Kong, the Hang Seng Index surged 1.79% to hit a 32-month high in its first trading session since Thursday following the Lunar New Year holidays.

Mainland Chinese markets will remain closed for the holidays until Thursday while Wall Street was also shut on Monday.

Ord Minnett advisor John Milroy said while share markets were positive investors were becoming wary of the future risk of inflation due to central bank and government stimulus programmes in place around the world.

“There is a clear sense with rates staying low for some time yet and investor appetite for equities staying strong we will likely see markets hold up for some time yet,” Milroy told Reuters.

“Gaining traction is the thought that inflation could rise much faster and sooner than the Fed is currently thinking. Then if they do raise rates to combat it what happens to equity markets and of course bond markets.”

The bullish view on the economy lifted bond yields, with the 10-year US Treasuries gaining 5 basis points to 1.245% in early Asian trade, its highest since late March.

Investors are looking to the minutes from the US Federal Reserve’s January meeting, due to be published on Wednesday, for confirmation of its commitment to maintain its dovish policy stance over the near future. That in turn is set to keep a tab on bond yields.

But some analysts say investors should keep a wary eye on bond yields.

“If US bond yields keep rising, that could start to unsettle stocks,” said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management.

S&P500 futures traded 0.65% higher to a record level and MSCI’s all country world index (ACWI), which has risen every single day so far this month, ticked up slightly.

Successful rollouts of COVID-19 vaccines in many countries are raising hopes of further recovery in economic activities hampered by range of anti-virus curbs.

US President Joe Biden is pushing ahead with his plan to pump an extra $1.9 trillion in stimulus into the economy, in a further boost to market sentiment.

Oil prices soared to their highest in about 13 months as a US winter storm added fuel to their rally on hopes of further demand recovery.

US crude futures traded up 1.1% at $60.11 per barrel.

Prices have rallied over recent weeks on tightening supplies, largely due to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the wider OPEC+ group of producers.

Rising oil prices supported commodity-linked currencies such as the Canadian dollar while safe-haven currencies including the US dollar took a back seat.

The British pound held firm at $1.3910, staying at its highest levels since April 2018.

The offshore Chinese yuan hit a 2-1/2-year high of 6.4010 per dollar overnight and last stood at 6.4030.

MSCI’s emerging market currency index hit a record high as well.

The yen weakened to 105.36 per dollar, edging closer to its four-month low of 105.765 set on Feb. 5. while the euro was up 0.1% at $1.2142.

In Asia, Bitcoin was trading at $48,088.28, off its record high of $49,715 hit on Sunday.