Asian stocks gain on commodity rally; focus shifts to Powell speech

Asian stocks gain on commodity rally; focus shifts to Powell speech
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BENGALURU (Feb 23): Asian equities firmed on Tuesday, as rising commodity prices fuelled market expectations that global economic recovery was gathering steam, while bond yields remained elevated after the recent spike in US Treasury yields. 

The Thai index led gains in the region, trading 1.7% higher as its heavyweight energy stocks gained on rising crude prices. 

"The dip buyers are out in Asia, with US futures all tracking higher and Asia-Pacific equities riding the cyclical upturn commodity wave," said Jeffrey Halley, senior market analyst at OANDA.

Focus turns towards US Federal Reserve Chairman Jerome Powell's Congressional testimony due later in the day, where comments on higher inflation outlook and rising yields will be closely watched. 

"Asia has probably seen the best of the intra-day rally now, with the risks around the Powell testimony this evening likely to temper exuberance."

Longer-dated bond yields in the region remained high, with yields on Indonesia's 10-year bonds, generally seen as a favourite in the region, rising as much as 9 basis points to 6.754 — highest since mid-October.

Rising US Treasury yields have dented the lustre of Asia's high-yielding bond markets, while expectations of steeper borrowing costs and higher inflation also reduce the attractiveness of emerging economies with less stable currencies and public finances.

According to Refinitiv Lipper, emerging market bond funds faced outflows for the first time in 21 weeks in the week ended Feb 17, with outflows of US$689 million. 

Higher bond yields also traditionally draw funds away from equities by providing more secure long-term returns, and a switch from high-flying tech stocks in particular has been at the heart of a recent halt in global stock markets' long rally. 

Most Asian emerging currencies strengthened as the US dollar hit a six-week low.

The Indian rupee strengthened to 72.333 per US dollar. It has risen continuously for the last three months, and is up nearly 1% so far in February, as India's economic outlook brightened amid a drop in Covid-19 cases. 

Analysts in Bank of America Merrill Lynch said in a note that while high FX reserves would shield the rupee from rising oil prices, an increase of US$10 per barrel could potentially reduce consumption demand by 0.4% of gross domestic product.

India imports almost all of its oil. 

"We continue to expect an oil tax cut to soften retail prices. A relief is that this can be funded by the Reserve Bank of India's Open Market Operations as the higher oil import bill will cut FX intervention," the BofA analysts wrote.

Highlights:

  • Top gainers on Thailand's SETI include Group Lease PCL and TWZ Corporation PCL that rose 28.57% and 14.29%, respectively. 
  • Top gainers on FTSE Bursa Malaysia Kl Index include Genting Malaysia Bhd up 3.99% and Genting Bhd up 3.79%. 
  • Indian shares on track to snap five straight sessions of losses.