Asian shares extend global recovery as volatility subsides

Asian Stock Markets

Asian shares gained on Monday, joining a global recovery for equity markets as sentiment improved gradually from a recent shakeout that was sparked by fears of creeping inflation and higher borrowing costs. 

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent, having recovered more than 40 percent of its losses from late January to last week’s low.

Trading was slower than usual due to market holidays in the United States as well as Greater China.

Japan's Nikkei .N225 gained 2.0 percent while U.S. stock futures ESc1 climbed gained 0.4 percent in Asia on Monday.

European share are also seen rising, with spread-betters expecting advances of up to 0.8 percent in Germany's Dax .GDAXI, 0.5 percent in France's Cac .FCHI and 0.2 percent in Britain's FTSE .FTSE.

MSCI’s index of stock markets across the globe .MIWD00000PUS gained 4.3 percent last week, the best weekly performance since December 2011.

The rebound came after a two-week rout that wiped off more than 10 percent of value at one point, triggered by worries a rise in U.S. inflation may boost dollar funding costs. 

The sell-off took place even as the corporate earning outlook improved on the back of strong global growth, bringing down equity valuations off highs hit earlier this year. 

The U.S. 10-year Treasuries yield rose to a four-year high of 2.944 percent US10YT=RR last week, compared to 2.411 percent at the end of last year. 

The two-year U.S. yield US2YT=RR hit its highest level since 2008 last week as investors bet the Federal Reserve will raise interest rates at its next policy meeting in March. The U.S. cash bond market is shut on Monday for a holiday. 

In October, the Fed started trimming reinvestments in Treasuries and agency bonds. As the Fed plans to gradually reduce reinvestments, the impact is expected to get bigger this year. 

While the Fed scales back its bond purchases, the U.S. government is expected to increase its debt issuance after Congress reached a deal earlier this month to raise spending by almost $300 billion over the next two years. 

The minutes of the Fed’s last policy meeting, held amid the equities tumble on Jan. 30-31, are due on Wednesday. Besides the outlook on rates, markets will be keen to see what, if anything, the Fed makes of the gyrations in markets. 

A fall in the Vix index .VIX, a gauge of expected volatilities in U.S. stocks, also helped underpin improving sentiment. 

The recent sell-off is believed to have been amplified by a jump in the Vix as many players are thought to have adjusted their portfolio in line with the change in volatilities. 

The euro EUR= stood at $1.2426, backing down from Friday's three-year high of $1.2556.

The dollar traded at 106.24 yen JPY=, bouncing back from its 15-month low of 105.545 set on Feb 16. 

The U.S. currency has been weighed down by a barrage of factors, including worries about widening U.S. trade and budget deficits and speculation Washington might pursue a weak dollar strategy. 

There is also talk that foreign central banks may be reallocating their reserves out of the dollar.

The weaker dollar propped up commodities. 

U.S. West Texas Intermediate crude CLc1 rose 1.1 percent in Monday Asian trade to $62.37 per barrel, extending their rebound from a 1-1/2-month low of $58.07 set on Feb. 9.