Asian markets mostly up ahead of US inflation, earnings

Markets mostly rose in Asia on Tuesday as investors gear up for a much-anticipated earnings season and the release of key US inflation data later in the day.

After a recent run-up in equities that saw the S&P 500 and Dow end last week at record highs, traders are taking a breather as they await the next buying catalyst.

A forecast-busting reading on US producer price inflation last week gave markets a taste of what to expect over the next few months as the global economy emerges from last year's crisis and vaccinations allow people to slowly return to their pre-pandemic habits.

The release of consumer price data is being closely followed. There are growing fears that reopening will send prices surging this year and force central banks to tighten the ultra-loose monetary policies — including rock-bottom interest rates — that have helped fire a year-long equity rally.

The Federal Reserve has repeatedly pledged not to change tack until inflation is elevated for some time and unemployment is under control.

Those worries have sent benchmark 10-year Treasury yields — a gauge of future borrowing costs — to one-year highs. The smooth sale of government bonds Monday soothed some concerns.

"It's more of a wait-and-see, ahead of a week that promises no shortage of 'rock-the-boat' type inflation data," said Axi strategist Stephen Innes.

"The fact that stocks remain perched near record highs suggests investors still believe the economic acceleration should be a powerful tailwind for stocks this quarter and ensure earnings growth."

He added: "The global equity market's reaction to this week's data docket… will be a keen litmus test that the equity investors are happy with growth driving higher yields and continue buying into the Fed's messaging by allowing (it) to let the economy run hot."

Markets in Asia enjoyed gains, with Hong Kong, Tokyo, Seoul and Wellington all more than one percent higher. Shanghai, Sydney, Singapore and Taipei also rose, though Manila and Jakarta slipped.

"The real test is going to be when inflation starts to move higher," Priya Misra, at TD Securities, told Bloomberg TV. "That's when rates will have to reprice — either for a sooner Fed exit, or a later exit but a faster path."

Still, observers remain upbeat about the outlook and further markets advances.

"Although uncertainties remain, the Covid pandemic is passing, and successful rollouts of vaccination programmes are allowing economies to reopen," Aviva Investors said.

"Pent-up demand, large savings buffers and ongoing fiscal and monetary policy support will all help boost the recovery.

"Despite worries about virus mutations and renewed lockdowns in a number of regions, businesses and households have shown themselves to be impressively resilient and resourceful. 

"Successive waves of the virus have had less impact on real economic activity as both have adapted to sometimes rapidly changing circumstances."

Bitcoin was sitting just short of $61,000 as investors keep tabs on the debut of cryptocurrency exchange Coinbase on Nasdaq on Wednesday.

Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 1.1 percent at 29,848.41 (break)

Hong Kong – Hang Seng Index: UP 1.2 percent at 28,801.93

Shanghai – Composite: UP 0.3 percent at 3,421.59

Euro/dollar: DOWN at $1.1898 From $1.1913 at 2200 GMT

Pound/dollar: DOWN at $1.3738 from $1.3741

Euro/pound: DOWN at 86.60 pence from 86.68 pence

Dollar/yen: UP at 109.59 yen from 109.37 yen

West Texas Intermediate: UP 0.2 percent at $59.81 per barrel

Brent North Sea crude: UP 0.2 percent at $63.41 per barrel

New York – Dow: DOWN 0.2 percent at 33,745.40 (close)

London – FTSE 100: DOWN 0.4 percent at 6,889.12 (close)