Rising US government bond yields put negative pressure on stock indices

Shares in Charles Schwab (SCHW) rose by almost 4% after the publication of mixed first-quarter results. The company’s profit beat economists’ expectations, but revenue fell short of forecasts. The brokerage also reported a drop in deposits and said it was suspending its share buyback program. Alphabet (GOOGL) shares fell by 2% on reports that Samsung can abandon Google search in favor of Microsoft’s Bing (MSFT) as the default search engine on its devices, threatening around $3 billion in annual revenues. Apple (AAPL) has announced that it will open a savings account for Apple Card users.

ECB head Christine Lagarde warned yesterday that changes in the global economy caused by geopolitics pose a challenge to the European Central Bank and its colleagues. A key finding of leading democracies is that there is a need for greater “resilience” in supply chains – so that they are better insulated from risks ranging from war and pandemics to attempts at coercion by authoritarian regimes.

Oil prices were down by 2% yesterday. The US dollar is strengthening along with rising government bond yields, making dollar-denominated oil more expensive for holders of other currencies. Traders are betting that the Fed will raise its lending rate by another quarter percentage point in May and have pushed back expectations of a rate cut until later this year, as it usually does during a slowdown in economic growth. The IEA also warned in its monthly report that production cuts announced by OPEC+ producers could exacerbate the oil supply shortfall expected in the second half of this year and could hurt consumers and the global economic recovery.

Asian markets mostly rallied yesterday. Japan’s Nikkei 225 (JP225) gained 0.07%, China’s FTSE China A50 (CHA50) jumped by 1.90%, Hong Kong’s Hang Seng (HK50) ended the day up by 1.68%, India’s NIFTY 50 (IND50) fell by 0.68%, and Australia’s S&P/ASX 200 (AU200) was positive by 0.27% by Monday’s end. According to analysts, the prospect of higher interest rates from the US does not bode well for Asian markets, given that it limits the amount of foreign liquidity flowing into the region. But given that most Asian central banks have suspended their respective rate hike cycles, Asian indices could find some support in the short term.

China’s economy grew by 4.5% in the latest quarter, helped largely by the lifting of restrictions against COVID. But other economic indicators were mixed. Industrial production in March was worse than forecast for the second month in a row, indicating that the country’s manufacturing sector is still recovering and has not gained momentum. Nevertheless, strong retail sales data showed that China’s consumption-driven economic recovery is largely on track, which is likely to benefit the country’s exporters in the near term.

The RBA’s March monetary policy minutes showed strong reasons to pause and reassess the need for tightening at future meetings. The board had considered a rate hike in April before deciding to pause. But as inflation remains high, further assessment of data on inflation, jobs, consumer spending, and business conditions is needed.