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China liquidity weighs on investor sentiment

(ATF) Hong Kong: Rising money market rates in China as the spring festival holiday period approaches and stalled US stimulus talks pressured Asian markets with investors also watchful before major earnings and data releases.

Japan’s Nikkei 225 index tumbled 1.06%, Australia’s S&P ASX 200 retreated 0.87%, Hong Kong’s Hang Seng index slipped 0.66% and China’s CSI300 inched 0.21% lower. Regionally, the MSCI Asia Pacific index fell 0.55%.

Expectations of a large US stimulus package have been pared after Republicans branded US President Joe Biden’s plan too expensive. Biden has said he is flexible on the overall cost of the package.

“This is a time where fiscal stimulus is going to take centre stage,” said Jim Caron, Managing Director, Global Fixed Income Team, Morgan Stanley Investment Management. “Fiscal policy is going to be the big driver of that monetary policy. Interest rates are already at zero. The most the Fed can do is try to keep talking about interest rates and keeping them low. And if we do that, then the cost of borrowing stays low.” 

Liquidity conditions in China have spooked investors amid speculations policymakers could slowly switch to a tighter monetary policy stance. The volume-weighted average rate of benchmark overnight repos rebounded above 2%, showing slight signs of tightness again.

US Treasuries fell with rising yields helping boost the US dollar, which rose 0.3% versus a basket of currencies (DXY) to 91.4. The 10-year yields are up 2 basis points to 1.13%.

On the back of that, gold tumbled 1.2% to $1,812 per ounce.

“The USD Index or DXY could take back more of its post-US election losses and rise to 93 on improved US growth and inflation prospects,” said DBS Economist Radhika Rao, and Strategist Philip Wee.

“The former is reflected in a steeper US treasury yield curve; the 10-year-two-year spread punched above 100 bps for the first time since May 2017.”

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index tumbled 1.06%
  • Australia’s S&P ASX 200 retreated 0.87% 
  • Hong Kong’s Hang Seng index slipped 0.66%
  • China’s CSI300 inched lower by 0.21%
  • The MSCI Asia Pacific index fell 0.55%.

Stock of the day

Internet giant Alibaba rose more than 2% after it announced a multi-tranche bond issue, which investors said was well received and would boost the company’s cash balance.

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai

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