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Most Asian markets fall as inflation fears trump signs of recovery

Asian markets mostly fell Monday as persistent inflation fears overshadowed a forecast-busting US jobs report and Senate approval of Joe Biden’s huge stimulus package, while Brent crude broke past $70 for the first time in almost two years after an attack on energy facilities in Saudi Arabia.

Traders were given a stellar lead from Wall Street, where the three main indexes surged following news that the world’s top economy created 379 000 jobs in February, reaffirming the view that it is on track for a strong recovery.

The report came just ahead of senators passing Biden’s $1.9 trillion rescue plan, setting it up for the president’s signature by the end of the week.

In another sign that the world economy is getting back on track, China at the weekend released data showing a better-than-expected jump in exports in January and February, suggesting global trade is revving up again after being hammered by the coronavirus pandemic.

However, the news added to fears about soaring inflation that could force the Federal Reserve and other central banks to wind back the ultra-loose monetary policies that have been a key driver of a year-long equity market rally.

“The US federal government and the Federal Reserve seemed to have learnt something from their attempts to reheat the economy after the great financial crisis,” said David Kelly at JP Morgan Asset Management.

“The economy is already surprisingly warm and, with the help of very aggressive policy, is likely to heat up quickly from here. However, the critical question remains whether they have the skill and discipline to turn the policy temperature down to a simmer before inflation, and not just the economy, comes to a boil.”

Hong Kong ended 1.9 percent lower while Shanghai closed down 2.3 percent. Tokyo, Seoul, Wellington, Taipei and Jakarta also suffered selling pressure.

However, Sydney, Singapore, Mumbai and Bangkok all rose.

London, Frankfurt and Paris were all up in early European trade.

The losses come as investors also worried that valuations may have run a little too far and were in line for a correction.

“Profit taking is not over yet, given that the yield continues rising and investors have become cautious,” Jackson Wong, at Amber Hill Capital, said.

Oil prices extend rally

While the outlook for the global economy is for a strong rebound from last year’s recession, there is a growing worry about soaring prices, with benchmark US 10-year Treasury bond yields continuing to rise.

Yields rise as bond prices fall, and investors have been rushing out of them as inflation would eat into their returns over time, sparking the selloff in world markets.

And observers say markets are worried that the Fed is reacting too slowly, with strategist Louis Navellier saying at the weekend that traders are worried the central bank may not have enough firepower to control the surge in yields.

Fed boss Jerome Powell “keeps talking about how inflation is transitory and may not persist”, he said.

“This is the real problem. Wall Street sees higher crude oil prices and Treasury yields, while Powell is essentially in denial about inflation, which does not inspire investor confidence.”

Investors will be keeping tabs on the European Central Bank’s latest policy meeting this week, hoping officials will stress their commitment to keeping borrowing costs low, while the Fed is due to gather next week.

Crude prices, already rallying on expectations that the global recovery will fan a surge in demand, jumped more than two percent Monday – having climbed around four percent Friday — after a missile and drone attack on Saudi Arabia’s oil industry.

Brent at one point peaked at $71.38 before easing slightly but is still sitting at levels not seen since May 2019.

The strike on the Aramco facilities — including one of the world’s biggest oil ports — by Yemen’s Huthi rebels Sunday followed the bombing of the country’s capital Sanaa by a Saudi-led military coalition.

The rising hostilities underscore a dangerous intensification of Yemen’s conflict between the coalition-backed Yemeni government and the Iran-backed Huthis, despite a renewed US push to end the war in the crude-rich region.

“So far, there have been no reports of significant damage or oil supply chain disruptions, but this is an evolving story that will keep oil traders on their toes,” said Axi’s Stephen Innes.

Key figures around 0820 GMT

  • Tokyo – Nikkei 225: DOWN 0.4 percent at 28,743.25 (close)
  • Hong Kong – Hang Seng: DOWN 1.9 percent at 28,540.83 (close)
  • Shanghai – Composite: DOWN 2.3 percent at 3,421.41 (close)
  • London – FTSE 100: UP 0.4 percent at 6,654.66
  • Brent North Sea crude: UP 1.1 percent at $70.13 per barrel
  • West Texas Intermediate: UP 1.0 percent at $66.78 per barrel
  • Euro/dollar: DOWN at $1.1893 from $1.1919 at 2145 GMT
  • Pound/dollar: DOWN at $1.3840 from $1.3841
  • Euro/pound: DOWN at 85.94 pence from 86.08 pence
  • Dollar/yen: UP at 108.43 yen from 108.36 yen
  • New York – Dow: UP 1.9 percent at 31,496.30 (close)

— Bloomberg News contributed to this story –

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