SYDNEY / NEW YORK Jan 12 (Reuters) – Shares breathed a sigh of relief on Tuesday, escaping record highs as political unrest in Washington and rising coronavirus cases came to a halt, though a US Treasury sale stretched as investors forecast a large expenditure government.
The yield on U.S. 10-year debt, which rises as prices fall, rose as much as 2.4 basis points to a new ten-month high of 1.1580%.
Pharmaceutical manufacturers lifted Japan’s Nikkei to a new three-decade high after reports of another effective COVID-19 treatment, although the index eased to be 0.16% lower in the afternoon.
Strong influx helped Chinese blue chips 1.11% higher.
S&P 500 futures were 0.05% weaker and London’s FTSE futures were 0.13% lower in Asia on Tuesday.
A booming US dollar clung to four-day gains against other major currencies, keeping the euro and yen close to several weeks of lows.
“We have seen a very strong week or so (in equities) and I think the lower moves we are seeing are some profit,” said Chad Padowitz, Investment Manager at Talaria Capital in Melbourne.
“I do not think higher interest rates or inflation expectations are an area of concern for stocks at the moment.”
Political uncertainty tempered the mood somewhat as Democrats introduced a decision to indict US President Donald Trump, accusing him of inciting rebellion following a violent attack on the Capitol last week.
Overnight, the Nasdaq led modest losses on Wall Street, down 1.3% as investors sold tech giants who have taken steps against Trump and his supporters.
Twitter tumbled 6.4% Monday after it permanently suspended Trump’s account last Friday.
The U.S. yield curve is stronger because investors are expecting a high-spending, high-borrowing U.S. government after Democrats won control of both Congress last week.
The dividend on US 10-year debt has risen by 23 basis points already this year, and the spread between the two-year and 10-year government interest rates is now wider than 100 basis points for the first time since July 2017.
“Treasury has gone back to March levels,” said Mark Beardow CIO of Darling Macro in Sydney.
“What is different between now and then is clearly the situation around COVID, the Fed’s policy and most importantly the new government in the US, but some of these other factors could restore themselves in the short term.”
Flows from the huge and sudden sale have supported stocks as they knocked on the brakes on short dollar positions. A renewed focus on inflation expectations will cause investors to follow US CPI data on Wednesday.
Meanwhile, the dollar index jumped 1.5% from last week’s near-three-year low as investors trim what have become very large short positions.
Elsewhere, investors expect guidance on the extent to which executives are seeing a recovery in 2021 earnings and the economy from results and conference calls from JP Morgan, Citi and Wells Fargo on Friday.
US crude was slightly lower at $ 52.16 per barrel. Barrel, and Brent was 0.22% lower at $ 55.54.
Gold sold as US interest rates rise because it pays no interest, equivalent to $ 1,850 an ounce.
Reporting by Paulina Duran in Sydney and Chibuike Oguh in New York. Writing by Tom Westbrook; Clip by Sam Holmes and Lincoln Feast