Asia stock rally fizzles as bonds gain and yen jumps

TOKYO/SYDNEY — Reflation fever failed to spread to Asia hours after global equities soared to the highest level on record.

Stocks in Tokyo fell as the yen jumped and US Treasuries climbed after five straight days of declines. The moves came after the MSCI All-Country World Index closed at an all-time high on Wednesday (Feb 15).

Evidence of firming US inflation had spurred bets that the economy can withstand higher interest rates as it waits for stimulus from the Trump administration. The US dollar slipped against most major currencies.

World equities have jumped in value to more than US$70 trillion (S$99.37 trillion) after a rally since Donald Trump’s election that has been spurred by optimism for stronger US economic growth. A technical indicator showed MSCI’s broadest measure of global equities might have become overbought.

Wednesday’s data lifted the odds for a Fed rate hike in March to 42 per cent from 30 per cent two days ago, helped by Fed chair Janet Yellen’s testimony that the central bank doesn’t need to wait for Mr Trump to outline plans on fiscal stimulus before resuming rate hikes.

US year-on-year inflation reached 2.5 per cent for January, the fastest pace since 2012.

Before Yellen’s testimony, traders had anticipated the Fed would start raising US borrowing costs in June. Now they see one as early as May, according to futures data compiled by Bloomberg. Data this week also showed factory price increases accelerated in China.

Japan’s Topix fell 0.3 per cent at 10.11am, after fluctuating between gains and losses earlier in the day. Australia’s S&P/ASX 200 Index fell 0.1 per cent.

Hong Kong’s Hang Seng was flat, erasing an earlier gain of 0.7 per cent. The Hang Seng China Enterprises Index fell 0.1 per cent, after Wednesday’s 1.9 per cent surge.

Futures on the S&P 500 fell 0.1 per cent after the benchmark index rose 0.5 per cent and the MSCI All-Country World Index added 0.6 per cent on Wednesday.

The yen rose 0.3 per cent to 113.84 per US dollar, after snapping a 0.9 per cent decline on Wednesday.

The yield on 10-year Treasuries dropped one basis point to 2.48 per cent after increasing for a fifth day on Wednesday. BLOOMBERG