Equities pare early gains

Higher US yields push equities lower

The US stimulus package’s move through the US Senate, and a robust post-payroll finish from Wall Street on Friday, lifted Asian equities initially this morning. With US 10-year futures moving lower today in sympathy (yields higher), the firm moves higher across Asia have been pared back.

On Friday, Wall Street had an emotional session, falling aggressively, before a retreat by US bonds and a strong Non-Farm Payrolls released bullish animal spirits. The S&P 500 finished 1.95% higher, with the Nasdaq climbing 1.55%, and the Dow Jones closing 1.85% higher. Opening higher this morning, US index futures on all three have now turned lower, the Nasdaq futures now down nearly 0.90%.

Today’s climb in oil prices is also weighing on energy-hungry Asian markets, but the retreat by US index futures as US yields climb in Asia is the main driver for the reversal. The Nikkei 225 is now 0.35% lower, with the Kospi back to flat. The Shanghai Composite is 0.55% lower, with the CSI 300 down 0.85%. Meanwhile, the Hang Seng has now fallen by 1.10%.

Notably, like Friday, the pro-cyclical ASEAN markets are outperforming once again, with their high beta to traditional recovery sectors. Singapore is 1.65% higher, Kuala Lumpur is 1.25% higher as oil prices track higher, Bangkok has risen 0.50%, and Jakarta has climbed 0.60%.

Those same factors, along with firm commodity prices, seem to be saving Australian markets’ blushes today as well. Have leapt higher on the open in their slavishly following Wall Street way, Australian markets have pared gains but remain well in the green. The ASX 200 and All Ordinaries are both 1.05% higher.

Despite the initial US stimulus surge, the price action in equities shows that the trajectory of US 10-year yields continues to be the one ring that rules them all. The fact that the inflation story only took a one-session break from being at the top of investor minds bodes ill for equities for the rest of the week.

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