Asian stocks mixed as Australia hikes interest rates

Asian stocks were mixed on Tuesday after Australia’s central bank hiked interest rates for the first time since 2010.

Trade was weak as markets in mainland China, Japan and some other countries were closed for public holidays.

Australia’s central bank raised interest rates from 0.1% to 0.35%.

Investors are also expecting another rate hike from the US Federal Reserve as it and other central banks accelerate their efforts to contain inflation. The central bank is expected to hike short-term interest rates by twice the usual amount when it releases its latest statement on Wednesday. It has already raised its key overnight rate once, for the first time since 2018, and Wall Street expects several large hikes in the coming months.

This makes borrowing more expensive – for a car, a house, a credit card purchase, and can weaken the economy. It would also draw investment from stocks into other assets as their yields rise. Ultra-low interest rates have helped stocks soar to unprecedented highs during the pandemic, and now that process is being reversed.

Australia’s S&P/ASX 200 fell 0.5% to 7,307.50 and stocks in Thailand and Taiwan also fell.

Hong Kong’s Hang Seng rose 0.9% to 21,278.11 and South Korea’s Kospi rose 0.2% to 2,691.37.

On Monday, a late afternoon reversal led by tech stocks sent Wall Street’s major indices modestly higher, averting further losses after a brutal April when widespread tech sell-offs dragged key benchmarks lower.

The S&P 500 was up 0.6% to 4,155.38, while the Dow Jones Industrial Average was up 0.3% to 33,061.50. The Nasdaq rose 1.6% to 12,536.02.

Smaller company shares also reversed course after spending most of the day in the red. The Russell 2000 Index rose 1% to 1,882.91.

Bond prices fell, pushing yields higher. The 10-year Treasury yield was 2.98% after rising to 3.00% on Monday. According to Tradeweb, it has not been above 3% since December 3, 2018.

The uneven start to May follows an 8.8% slide for the benchmark S&P 500 in April, led by big tech companies that were beginning to look overpriced, especially amid sharply rising interest rates.

Just over half of the stocks in the S&P 500 closed higher, with the technology and communications sectors accounting for much of the gain. Chipmaker Nvidia and Facebook’s parent company Meta Platforms were each up 5.3%.

The broader market often veers in the direction of tech stocks. Many companies in the industry have expensive stock values ​​and therefore have more power to push the major indices up or down.

Still, it’s unusual for tech stocks to rise in tandem with rising bond yields. That’s because higher yields make bonds an increasingly attractive asset relative to riskier and more expensive stocks, particularly in technology and other growth-oriented companies.

US crude oil prices rose. European energy ministers meet in Brussels to discuss Russian supply issues and sanctions. Russia’s invasion of Ukraine caused already high oil and natural gas prices to spike.

U.S. benchmark crude fell 27 cents to $104.90 a barrel in electronic trading on the New York Mercantile Exchange. On Monday it was up 48 cents to $105.17 a barrel.

Brent crude fell 28 cents to $107.30 a barrel.

Concerns about rising inflation hung over the latest round of corporate earnings. This week will bring more, with Pfizer reporting results on Tuesday, CVS Health on Wednesday and Kellogg on Thursday.

In forex trading, the dollar was trading at 130.11 Japanese yen, down from 130.15 yen on Monday. The euro rose to $1.0512 from $1.0505.

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