AI-related shares fared well in Asia on Thursday after a raft of generally positive earnings reports, while surging oil prices left bonds battered as central banks turned more hawkish on inflation and interest rates.
Investors feared the European Central Bank and Bank of England would likely warn of higher rates later in the day, after three Federal Reserve members voted to drop its easing bias in the most divided decision since 1992.
Outgoing chair Jerome Powell also confirmed he would stay on as a governor for now to defend the institution’s independence as his successor Kevin Warsh, hand-picked by president Donald Trump, who wants lower interest rates, moves toward confirmation.
Markets were quick to price out any rate cuts from the Fed this year, and there is a roughly even chance of a hike by next spring. US Treasury yields rose to a one-month high and the dollar gained broadly, hitting over 160 yen.
The latest spike in oil prices was a cause for concern, as Brent crude futures jumped 6% overnight to a four-year high of US$122.53 a barrel on worries that the Strait of Hormuz might not open anytime soon.
“Macroeconomic risks are significant at this juncture, but stock market bulls hope a rosy path for artificial intelligence can continue to offset cyclical weakness,” said Jose Torres, senior economist at Interactive Brokers.
“If earnings, capital expenditures and outlooks are buoyant, investors could remain sanguine even as the threat of a slowdown in overall activity, loftier borrowing costs and widening credit spreads raise eyebrows.”
In Asia, Nasdaq futures rallied 1% as earnings from Google parent Alphabet topped forecasts, sending its shares up 7% in extended trading. Results from Microsoft and Amazon.com were also solid, raising hopes for Apple later in the day.
Meta Platforms disappointed as it raised its annual capital spending forecast to plough billions more into artificial intelligence infrastructure, sending its shares down 7%.
MSCI’s broadest index of Asia-Pacific shares outside Japan was flat on Thursday, but was still set for a whopping 16% gain this month. Japan’s Nikkei fell 1% but was up a similar 16% in April.
South Korea’s hit another all-time high as Samsung Electronics said its operating profit jumped eightfold to a record on robust AI demand, before running into some profit-taking.
China’s blue chips inched up 0.2% and Hong Kong’s Hang Seng index slipped 0.3%.
Battered bonds
Global bonds took a kicking on Thursday after the oil spike and a hawkish Fed fuelled a sell-off in Treasuries. Benchmark US Treasury yields climbed 1 basis point to 4.4237%, having jumped 6 bps overnight to 4.434%, the highest since late March.
The yield on 10-year Japanese government bonds rose 4 bps to 2.500%, the highest since June 1997. Australia’s 10-year government bond yields jumped 6 bps to 5.066%.
The US dollar popped up with higher yields, hovering near its highest level in more than two weeks. It held at 160.26 yen, after jumping 0.4% overnight to 160.48 yen, edging closer to levels that have previously triggered intervention.
The Japanese currency has fallen more than 2% since the war began on Feb 28, and investors have built the biggest short yen position in nearly two years in a bet that neither rate hikes nor risk of intervention will come to its rescue.
