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As investors anticipate the ECB's decision, Asian stocks are falling and bond yields are rising

Image: Reuters Berita 24 English -  Thursday, Asian markets sank, US bond yields climbed, and the dollar soared to a two-decade high versus ...

Image: Reuters

Berita 24 English -  Thursday, Asian markets sank, US bond yields climbed, and the dollar soared to a two-decade high versus the yen, as investors worried about the prospect of more rate hikes ahead of the European Central Bank's important meeting later in the day.

But, ahead of the meeting, when the ECB is expected to stop its Asset Purchase Program and announce rate hikes to combat growing inflation, the Asian session was relatively quiet as many investors stayed away.

"It's textbook price movement before of a central bank meeting. It doesn't make sense to speculate on anything other than an hourly or intraday period right now "Matt Simpson, a senior market analyst at Sydney's City Index, agreed.

"This is the most exciting meeting since (Christine Lagarde) took over, since Draghi arrived - 'whatever it takes.'"

Adding to concerns about European inflation, data indicated that, despite the Ukraine conflict, the euro zone economy grew substantially quicker in the first quarter than in the previous three months.

Investors are waiting for U.S. consumer price data on Friday, which the White House expects to be "elevated," while they speculate on the magnitude and pace of ECB tightening. According to a Reuters poll, economists predict annual inflation to be 8.3 percent.

Despite the fact that Asian stock markets have gained around 8% from near two-year lows hit last month, investors remain concerned that central bank policy tightening to contain inflation could trigger an economic downturn.

MSCI's broadest index of Asia-Pacific equities outside Japan was down 0.39 percent in morning trade, after losses in US stocks the day before.

Although Hong Kong's Hang Seng gained less than 0.2 percent and Chinese A-shares were flat, Australian shares fell 1.19 percent and Seoul's KOSPI fell 0.64 percent.

The Nikkei stock index in Japan remained flat as well.

The Dow Jones Industrial Average sank 0.81 percent overnight, while the S&P 500 dropped 1.08 percent and the Nasdaq Composite dipped 0.73 percent.

"Trading has been in a very narrow range and based on very low volumes over the last two weeks," ING analysts wrote in a note.

"Previous instances of this range trading on low volumes have frequently signaled a sharp down-shift," they said, adding that the ECB meeting and Friday's US pricing data were likely "catalysts for a more negative outlook."

The uncertainty surrounding US price data dragged on US Treasuries, which saw rates climb following a lackluster 10-year note auction on Wednesday.

The 10-year yield inched up to 3.0548 percent on Thursday from a finish of 3.029 percent on Wednesday, while the two-year yield rose to 2.8027 percent from a close of 2.774 percent.

The dollar benefited from rising rates, especially versus the yen, which fell to a 20-year low of 134.56. A widening policy divergence has weighed on the yen, with the Bank of Japan maintaining one of the few global central banks to maintain a dovish posture. 

The dollar index was marginally higher at 102.6, and the euro was unchanged at $1.0712 ahead of the ECB meeting.

Crude oil prices rose to their highest levels in three months on expectations of strong US demand and a recovery in China as COVID-19 restrictions are removed.

Brent crude, the global standard, was last trading at $123.83 per barrel, up 0.2 percent on the day. The price of US crude rose 0.17 percent to $122.32.

Gold, which is vulnerable to interest rate hikes but is seen as an inflation hedge, fell in value. The price of spot gold fell 0.1 percent to $1,851.35 per ounce. 

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