Asian stocks jumped in Asian trading on Thursday after the Fed chairman dispelled concerns about a rise in interest rates, the dollar came under pressure to fall below the 90 mark, and rising US bond yields widened the fall in gold prices.
By the end of the day, Australia's S&P/ASX200 index closed up 0.83%; the Nikkei 225 index closed up 1.68%; and South Korea's KOSPI index closed up 3.5%, its biggest one-day gain since Jan. 8. The A-share Prev rose slightly, while the Hang Seng Index rebounded nearly 500 points after plunging 1000 points yesterday.
Federal Reserve Chairman Colin Powell reiterated that interest rates will remain low for a long time, calming fears that rising inflation could prompt the central bank to tighten the floodgates of monetary policy.
Testifying before the House Financial Services Committee, Powell continued to emphasize the Fed's commitment to return the economy to full employment and was not worried about inflation unless prices began to rise in a sustained and disturbing manner.
The Fed has said it will not raise interest rates until inflation exceeds 2%. "We believe we can do it, we believe we will do it." It could take more than three years, "Powell said."
Recently, Fed officials have made speeches trying to convince the public, especially bond market investors, that monetary policy will not be tightened until there are clear signs that people will return to work. Powell is the latest Fed official to speak out.
From Powell to Orr, chairman of the Federal Reserve of New Zealand, many senior central bankers have expressed their position this week, stressing that policy will continue to be loose for some time.
"Powell made it clear that the improved economic outlook so far will not prompt the Fed to tighten monetary policy," Rodrigo Cattrill, foreign exchange analyst at National Bank of Australia, said in a client report. "the party feast will not end in the short term, and the policy environment should continue to be conducive to risky assets for some time."
In the foreign exchange market, major currencies opened little changed, the dollar is still quite fragile, and the stock market has been rebounding since yesterday's trading. With US Treasury yields still climbing and the yen still in a difficult position, USDJPY is now on track to break above 106.00.
EURUSD remains around the key resistance level of 1.2170-95, and bulls can't really get out of this range for the time being. But the dollar came under more pressure against commodity currencies, with the Australian dollar closing at 0.8000 and the New Zealand dollar above 0.7400-the highest level since January 2018. Meanwhile, the dollar fell to a three-year low against the Canadian dollar, falling below 1.2500 cents earlier today-for the first time since February 2018.
Despite rumors that OPEC+ will increase production in the coming months, oil prices continue to show a more stable trend as the rebound continues.
While the stock market rally is another sign that easy money and bargain buying are the way out, the latest developments in the bond market (higher yields) and the commodity rally do leave something to think about.
Is the only thing that really matters is the Fed and the printing presses? Or will higher yields and an across-the-board rebound in commodities eventually affect stock market performance this year?
Although the latter factor is a reasonable argument based on historical examples, has it really been placed in such a market environment? It is largely protected by central banks and there are easy money flows everywhere.
Since April last year, loose monetary policy has easily defused the viral crisis. Will the Fed continue to do so in the coming months before it changes its mind or makes such a decision under market duress? Only time will tell us the answer.
"there is tension between the market and the central bank, but it is not a conflict, but it may come," said Jacob Nell, head of European economics at Morgan Stanley. "the Fed's attitude is that if the market thinks economic growth is stronger than we think, that's a good thing, which will boost economic growth and inflation expectations. So the Fed won't fight the market-it just doesn't believe it. "
Elsewhere, while Powell soothed the bond market, yields remained high. Before morning trading in Europe today, the yield on the 10-year Treasury note rose 3.6 basis points to 1.411 per cent. The yield on the 30-year Treasury note rose 4.4 basis points to 2.277 per cent. So far, the rise in the stock market has not produced too many spillover effects, but it is worth paying close attention to.
Higher yields undermined the attractiveness of gold, while spot gold continued to fall during the day and now widened its decline to around $1790.
Rising bond yields continue to put pressure on the gold market. Even with rumors of more stimulus measures, gold has not found any way to rebound sustainably, "said Phillip streble, chief market strategist at Blue Line Futures.
