Asian shares held firm near three-week highs

Asian Stock Markets

Asian shares held firm near three-week highs on Tuesday as U.S. borrowing costs eased ahead of Federal Reserve Chairman Jerome Powell’s awaited first congressional testimony later in the day.  

Japan’s Nikkei rose 1.1 percent to three-week highs while MSCI’s broadest index of Asia-Pacific shares outside Japan also hit a three-week high before giving up gains on profit-taking in Chinese shares. 

On Wall Street, the S&P 500 advanced 1.18 percent on Monday helped by a fall in U.S. bond yields.[.N] 

The 10-year U.S. Treasuries yield eased to 2.864 percent, dropping further from its four-year peak of 2.957 percent touched on Feb. 21, driven by month-end buying as well as position adjustments ahead of Powell’s testimony. 

Powell’s debut appearance is seen as critical for financial markets at a time when many investors are nervous about the Fed’s policy normalization following years of stimulus after the financial crisis almost a decade ago. 

Many investors expect the Fed to raise interest rates three times this year, with some pundits predicting four, if U.S. inflation starts to take off, especially as growth is set to get another boost from the Trump administration’s tax cuts and spending plans. 

Yet, there are worries higher dollar bond yields could prompt investors to shift funds to bonds from riskier assets, especially when the valuation of the world’s stocks are quite expensive even after their sell-off earlier this month. 

The two-year U.S. Treasuries yield was 2.226 percent, well above the dividend yield of the S&P 500, which stood at 1.88 percent. 

A rise in dollar interest rates could also bode ill for potential borrowers, including U.S. home buyers and many companies that have expanded borrowing for years to take advantage of low dollar funding costs. 

MSCI’s gauge of equity market performance in 47 countries, which gained 0.8 percent on Monday, rose another 0.1 percent on Tuesday, taking it to a new three-week high. 

Still, it is down 2.2 percent so far this month, suggesting its record 15-month winning streak that began in November 2016 is at risk. 

In the currency markets, the euro traded at $1.2327, up 0.1 percent in Asia but off its three-year high of $1.2556 hit earlier this month. 

The dollar traded at 106.85 yen, stabilizing for now above its 15-month low of 105.545 set on Feb 16.

Fed funds rate futures were almost fully pricing in a rate hike at the Fed’s next policy meeting on March 20-21.