Wayne Cole

SYDNEY – Asian shares lost Monday, as the global inflation angst favoured commodity as a hedge to U.S. equities. Meanwhile, U.S. bond yields rose and lifted the dollar up to two-and a-half years against the Japanese yen.

Nasdaq futures were down 0.5% early trade as the bull run in oil prices continued.

Analysts at ANZ stated in a note that “Bond yields continue pushing higher, inflation expectations rising and monetary tightening under various guises are becoming more common,”

According to them, “The global chips shortage” will last well into the next year. This would increase uncertainty and make it difficult for uneven recovery. The economic outlook is much darker than that of the initial phases of global recovery.

MSCI’s Asia-Pacific broadest index, which excludes Japan, fell 0.2%. Australia lost 0.9%. After losing 2.5% last week, the index lost 0.5%.

Earnings season starts this week. Expect stories about supply disruptions, rising costs and other surprises. JPMorgan reports Wednesday. BofA will follow on Wednesday. Morgan Stanley (NYSE: Citigroup (NYSE:) Thursday and Goldman Friday

A focus on U.S. inflation, retail sales data and the minutes of last Federal Reserve meeting that should show that November tapering has been discussed will also be included.

The headline U.S. employment numbers fell on Friday due to the reopening of problems in education and private sector employment.

Indeed, the lack of labor driving down the unemployment rate to 4.8% made investors more cautious about inflation. This drove Treasury yields significantly higher.

Yields for 10-year notes rose to 1.61% last week after jumping 15 basis points in the largest such increase since March.

In Asia and Europe, bonds were also selling off. Short-term yields in Britain reached their highest level since February 2020.

BofA’s analysts said that global inflation would only be increased by high energy prices. With oil at $100/barrel, there is limited supply and strong demand.

Real assets, commodities, stocks, emerging markets and volatility would all be winners. Bonds, credit, and stocks, however, would suffer.

BofA suggested commodities as an hedge. They noted that resources account for between 20-25% and 20% of major equity indices in Canada, Australia, and the UK; and 10% and 10% respectively in the Eurozone and the United States and China.

As U.S. yields outpaced Japan’s and Germany’s, the dollar held firm. It reached its highest point since April 2019, when it was 112.27.

It hovered around $1.1566 after reaching the lowest point since July, at $1.1527 last Wednesday. It was just below the 94.504 record.

Gold has been unable to offer a fixed return due to the stronger dollar and increased yields. It is now trading at $1,753 per ounce

After gaining almost 4% over the last week, oil prices rose again to their highest level in nearly seven years. [O/R]

The price of a barrel rose by 41 cents, to $79.76 from $82.64, and climbed 25cs to $82.64.