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Asian Stocks Up, but Caution Reigns Over Deepening U.S. Treasury Curve Inversions


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By Gina Lee – Asia Pacific stocks were up on Monday morning, but U.S. equity futures and Treasuries fell as the Fed could tighten its monetary policy further and Russia faces more sanctions over its invasion of Ukraine on Feb. 24.

Japan’s Nikkei 225 inched up 0.04% by 9:44 PM ET (1:44 AM GMT) and South Korea’s KOSPI was up 0.23%.

In Australia, the ASX 200 gained 0.44%, with monthly retail sales data released earlier in the day.

Hong Kong’s Hang Seng Index rose 0.85%.

Chinese markets were closed for a holiday, with a COVID-19 lockdown in the city of Shanghai continuing and a new subtype of the omicron variant reportedly detected in the country.

However, Chinese technology shares could get a boost after the China Securities Regulatory Commission on Saturday removed a key hurdle preventing full U.S. access to audits.

In Europe, some European Union governments are mulling new sanctions on Russia following reports that its troops executed unarmed civilians in Ukrainian towns.

The two-year U.S. yield exceeded the 30-year for the first time since 2007, the latest inversion on the Treasury yield curve and the latest warning of an impending slowdown in economic growth.

Investors now await the minutes from the Fed’s latest meeting, due on Wednesday. The minutes could provide important clues on the central bank’s asset tapering plans, as well as help calculate the probability of a half percentage-point interest rate increase in May.

“It would not be surprising to see yields rise further from here and it is very hard to know where they will land,” Evergreen Consultants founder and director Angela Ashton said in a note.

Markets are volatile and there is every chance they will overshoot.”

A stronger-than-expected U.S. jobs report on Friday also bolstered the case for the Fed’s tighter monetary policy. Non-farm payrolls rose by 431,000, while the unemployment rate was 3.6%, in March. Separate data also showed that the Institute of Supply Management manufacturing purchasing managers index (PMI) for March was 57.1, while the manufacturing PMI was 58.8.

New York Fed President John Williams on Saturday said a “sequence of steps” could get interest rates back to more normal levels. San Francisco Fed President Mary Daly said in an interview published Sunday that rising inflation and a tight labor market strengthen the case for a half-point hike in May 2022.

Other Fed policymakers will speak throughout the week, starting with Fed Governor Lael Brainard on Tuesday. Philadelphia Fed President Patrick Harker follows on Wednesday, while St. Louis Fed’s James Bullard, Atlanta Fed’s Raphael Bostic, and Chicago Fed’s Charles Evans will speak at separate events on Thursday.

In Asia Pacific, the Reserve Bank of Australia will hand down its policy decision on Tuesday, with the Reserve Bank of India handing down its own decision on Friday. China will also release its Caixin services PMI on Wednesday.

Asian Stocks Up, but Caution Reigns Over Deepening U.S. Treasury Curve Inversions

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