By Alun John

HONG KONG (Reuters – The volatility of oil prices and a sharp rise in U.S. Treasury yields caused volatility in Asia’s share markets on Wednesday.

MSCI’s Asia-Pacific share index outside Japan fell by 0.24% while Japan’s benchmark stock prices index dropped 1.13% as the index returned from vacation and caught up to global falls.

After rising 3% to a peak of one week, oil prices stabilized after the U.S. announced it would remove millions of barrels from its strategic reserves. This was in conjunction with China, India South Korea, Japan, and Britain. The move came after repeated requests for additional crude were unsuccessfully swayed by OPEC+ producers.

Futures gained 0.15% on their initial losses, rising to $82.43/barrel. The futures rose 0.33% at $78.76/barrel.

Senior Asia economist Carlos Casanova, Swiss private bank UBP said that “there’s lots going on right now.”

“10 Year yields have been rising and the U.S.dollar is strong. That is disruptive to Asian markets. A lot of other currencies, except for the, will appreciate and outflows will occur due to wider real rate differentials.

He said that “Chinese assets have held up relatively well” and attributed the strength of the People’s Bank of China to the removal of several hawkish references Friday’s quarterly support for monetary policy. This indicates central bank support in the future or the early part of next year, which will “provide a floor of equities.”

The Chinese blue chip shares were flat at 0.1% last week and have risen 0.5% this week compared to a nearly 1% drop in Asia’s regional benchmark. Hong Kong shares lost 0.1%.

Overnight yields rose to 1.684%, more than 5 basis point higher than the yields of Treasury bonds. The yields for 30-year Treasury bonds rose 6 basis points. The two-year U.S. Treasury yields fell to their lowest level since March 2020, having reached their maximum point since Monday. [US/]

Sim Moh Siong from Bank of Singapore, currency strategist and said: “There is a danger that the Fed might speed up tapering (of the bond-buying stimulation programme). That in turn means that the timeline for tightening could be moved forward. Contributing to the stronger dollar.”

Investors will examine the minutes from the November meeting of the U.S. Federal Reserve Policy Committee to see if there are any signs of tapering.

The non-interest bearing gold, which has reacted badly to the increase in Treasury yields had slightly recovered. While the spot price was at $1.794 last week, it was still 0.2% off Tuesday’s 2-week low. [GOL/]

The major currencies trade largely on the market’s expectations regarding central bank interest rate normalization schedules.

The rise in inflation and an easement of coronavirus restrictions prompted New Zealand’s central banks to raise interest rates on Wednesday.

Markets being open to the possibility for a bigger hike, New Zealand’s dollar wobbled as the news broke, before finishing marginally weaker at $0.6928.

The Bank of Korea (BOK) is next on the Asia agenda, with its policy meeting scheduled for Thursday.

In a November 15-22 Reuters poll, all 30 economists expected the BOK to raise its base interest rates by 25 basis points (to 1.00%), with one predicting a greater hike.

On Wednesday, currencies markets took a pause to take in the news as the dollar mostly held onto its gains against other peers thanks to the rising Treasury yields.

But, the greenback was able to marginally rise to reach a peak of 115.22yen after four and a half years.