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Dollar, US yields gain, Asian shares held back by Delta worries

Reuters Hong Kong | Updated on August 11, 2021

The dollar index rose to its highest since mid-July

The dollar and US yields extended gains in Asia on Wednesday, spurred by tapering talk, while Asian shares traded sideways on fears about the spread of the coronavirus despite a record close on Wall Street.

The dollar index rose to its highest since mid-July, gaining against the yen, while the euro neared year-to date lows against the greenback.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.08 per cent in Asian trading, with Chinese bluechips down 0.38 per cent, Korea’s KOSPI down 0.37 per cent.

All you wanted to know about taper tantrum

Improving US economic data and a more hawkish tone from Federal Reserve officials have led markets to expect the central bank to begin tapering its asset purchases later this year, pushing up yields and supporting the dollar.

But the move has been well flagged, meaning a repeat of the so-called “taper tantrum” of 2013 that shook markets when the Fed began putting the brakes on its quantitative easing programme, is unlikely, said Ray Farris, chief investment officer SouthA sia, Credit Suisse.

“In Asia there’s a little bit of concern about tapering but there is increasing understanding that we’re unlikely to get a tantrum,” said Farris.

Former PIMCO CEO Mohamed El Erian on Global Markets and India

“But there is a lot more concern about Delta because of its impact on a lot of Asian economies where vaccination rates are lower,” he said.

The Delta variant of the new coronavirus is spreading quickly in many Asian countries raising fears about local travel restrictions, hurting the economic recovery.

Australia was a rare bright spot, with the local index gaining 0.61 per cent, helped by the announcement of a record share buyback by the country’s largest bank, Commonwealth Bank of Australia, with its annual results.

Japan’s Nikkei gained 0.57 per cent.

US infra package

The dollar was supported by rises in longer and shorter dated treasury yields which reached their highest levels since mid July, with yields on benchmark 10-year Treasury notes touching a five-week high of 1.3610 per cent.

The Dow and S&P 500 closed at record highs as economically sensitive value stocks gained with the US Senate’s passage of a $1-trillion bipartisan infrastructure package, which now passes to the House of Representatives.

The infrastructure package could provide the nation’s biggest investment in decades in roads, bridges, airports and waterways.

Elsewhere, the stronger dollar and higher bond yields weighed on gold, with the spot price falling 0.2 per cent. Higher interest rates typically hurt non-interest bearing gold.

Oil held on to gains in Asian trading, having risen 2 per cent on Tuesday, on signs of rising fuel demand in the US.

US crude ticked up 0.01 per cent, Brent crude was flat.

Published on August 11, 2021

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