The US government holds the keys to the lock keeping inflation under control across Asia and Australia, with the head of Antipodes Asia Fund saying it could all come down to how much stimulus the Biden administration can pump into the US economy.
Rising consumer prices were already a post-earnings season concern for equity investors amid an accelerating economic rebound and the arrival of the Biden Administration’s $US1.9 trillion COVID relief package last month.
A further $US2.25 trillion in infrastructure spending – revealed by Biden last week – is seen as another likely inflation accelerant, further stoking concerns that central banks will raise rates sooner than expected to keep prices in check.
Biden’s bill still has to run the gauntlet through the US Senate – where it is likely to face opposition from Republicans and moderate Democrats – but Sunny Bangia, fund manager of the Antipodes Asia Fund, said the package nonetheless had the potential to drive prices upwards in Australia and in neighbouring countries.
“If the Biden administration were to implement an infrastructure stimulus, that would just put more pressure on commodity prices and that would probably put a huge pressure on commodity prices in Asia,” he said.
“Its unprecedented. It’s very US-driven. You don’t see the same inflationary pulse across Asia or Europe.”
Inflation concerns have been a key influence on equity markets both home and abroad in the post-earnings season period.
Yields on 10-year US government bonds entered the Easter break at near pre-pandemic highs, while long-dated yields in Australia are near levels not seen since April 2019, a sign economies are accelerating, and firming the perception a central bank rate hike will be brought forward.
High-growth sectors such as technology are particularly susceptible to rising bond yields, with investors more likely to turn to cyclical names instead of companies whose valuations have run red-hot.