Asian stocks weather bond storm, oil retreats slightly

Asian stock markets remained resilient on Friday despite a surge in bond yields, with the MSCI's Asia-Pacific index outside Japan remaining stagnant. While Chinese, Taiwan, and South Korean markets were on holiday, Japan's Nikkei index managed a 1% increase, while Australia's resources-focused shares dropped 0.6%. Hong Kong's Hang Seng index saw a 1% decline.

The sharp rise in bond yields, particularly in the U.S., has put pressure on risk assets as investors seek higher returns to offset inflation concerns and fiscal strains. The 10-year Treasury yield reached a 19-year high of 5.2251%, marking the biggest two-day increase since April 2022. This surge has led to a 1% weekly gain for the U.S. dollar, which is now trading at 101.25 against its major counterparts.

Brent crude oil prices also retreated slightly, falling 0.8% to $105.75 a barrel, after a Houthi missile attack on Saudi Arabia reignited fears of potential supply disruptions. Meanwhile, central banks worldwide are adopting a more hawkish stance in response to rising inflation. Norway's Norges Bank and Sweden's Riksbank have both raised interest rates, while Mexico's central bank maintained rates but signaled a potential pause. Despite these efforts, U.S. dollar strength persists, having climbed 1% this week.