Asian markets rally as inflation fears ease, oil extends gains

May 25, 2021: Easing inflation concerns helped push equities higher in Asia on Tuesday, tracking a healthy rally on Wall Street, with traders taking heart from the global economic recovery outlook, while oil prices extended gains as Iran tempered optimism over its nuclear deal.

Bitcoin also held gains after another wild day, thanks to another supportive tweet from tycoon Elon Musk that offset fresh Chinese warnings of a crackdown on cryptocurrencies.

Tech firms led the way higher in New York as investors took heart from a number of Federal Reserve officials who insisted that an expected spike in prices over the next few months -- caused by issues including supply bottlenecks and just-freed consumers splurging cash -- would be temporary.

The gains helped chip away at recent losses in the sector, which has taken the brunt of selling owing to concerns that a surge in inflation will force central banks to tighten monetary policy such as hiking interest rates.

Tech giants are more susceptible to higher rates owing to the potential effect on their future earnings and cash flow.

"Markets appear to be coming around to the Fed narrative that a burst in inflation is only likely to be temporary and therefore should not be a concern," said Rodrigo Catril, of National Australia Bank.

"A temporary spike in prices should not instigate a removal of stimulatory policies from central banks."

After a mixed day Monday, Asian markets were on a roll.

Hong Kong jumped one percent and Shanghai climbed even higher, while Tokyo, Sydney, Singapore and Seoul all enjoyed comfortable gains.

Taipei piled on more than one percent despite a jump in virus cases in Taiwan that has forced the government to impose containment measures. Manila and Jakarta also rose but Wellington struggled.

Still, Chris Iggo, of AXA Investment Managers, warned that inflation will continue to cast a shadow over trading floors.

"Inflation is a key focus for investors, meaning uncertainty over what happens to interest rates," he said in a note.

Oil markets built on the previous two days' surge after Iran indicated there remained differences with the US and other world powers on the 2015 nuclear agreement, which has been reopened after Donald Trump pulled out when he was president.

Brent is up more than six percent and WTI almost nine percent since Friday, having been under pressure last week as traders considered the prospect of an agreement being reached and Tehran being allowed to sell crude on the global market again.

Bitcoin was holding around $38,500 -- having almost fallen through $30,000 recently for the first time since January -- after Musk tweeted support for a group attempting to make the mining of the currency less environmentally damaging.

"Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising," he wrote. Bitcoin jumped close to $40,000 Tuesday before easing slightly.

The cryptocurrency had on Monday suffered steep losses after China reiterated its call to curtail mining and trading. That came days after Beijing said the units would not be allowed in transactions and warned investors against speculative trading in them.

AFP/APP