Markets Wrap-up: Asian stocks mixed, US futures gain; investors weigh China COVID-19 measures, Fed policy

Stocks in Asia were mixed Tuesday with investors weighing Chinese measures to support the economy and the prospect for faster Federal Reserve policy tightening to fight inflation.

Equities were higher in Japan and South Korea, while Hong Kong declined and China wavered as investors assessed measures to tackle headwinds in the economy from Covid-led lockdowns. U.S. futures gained after stocks ended little changed in thin trading Monday.

Treasuries yields dipped after the long end declined Monday. St. Louis Fed President James Bullard said that rate increases of 75 basis points — while not the base case — shouldn’t be ruled out as the central bank needs to move quickly to combat inflation. Australian bond yields jumped.

The dollar held an advance. The yen is in the midst of the longest losing streak in at least half a century. Oil gave back some of its overnight gains.

Treasury yields are around the highest in more than three years as investors debate whether inflation is peaking. A jump in energy costs highlighted price concerns, as U.S. natural gas prices surged to the highest intraday level in more than 13 years.

Disruptions to supply chains from China’s lockdowns and to commodity flows from the war are keeping upward pressures on prices at a time when global growth is tipped to slow. The World Bank cut its forecast for global economic expansion this year on Russia’s invasion of Ukraine.

“Yield spikes have often spelled trouble for stocks, but we believe the past is an imperfect guide in a world shaped by supply shocks,” BlackRock Investment Institute strategists led by Wei Li, global chief investment strategist, said in a note. “We see central banks normalizing quickly – but not slamming the brakes on the economy. This should keep real yields low and underpin equity valuations.”

In China, markets are also awaiting the release of loan prime rates on Wednesday after the People’s Bank of China reduced the reserve requirement ratio for most banks Friday but refrained from cutting interest rates.

“The unwillingness to loosen monetary policy further before Covid is under control means that market sentiment will probably remain bleak in coming weeks,” the Gavekal Dragonomics team wrote in a note Monday. “However, equities will rally even harder if lockdowns lift and policymakers start to make up for lost growth with additional easing measures.”

Meanwhile, Ukrainian President Volodymyr Zelenskiy said Monday that Russian forces had begun the campaign to conquer the Donbas region in Ukraine’s east as Moscow continues moving troops and material into that part of the country.