SYDNEY / MIAMI (Reuters) – Asian stocks plunged to a month-low on Friday, with a defeat in global bond markets that raised yields and scared investors amid fears that the heavy losses suffered could trigger difficult sales of other assets.
The scale of the sale prompted Australia’s central bank to launch a surprise bond-buying operation to try to stop the bleeding, helping yields reach their initial peaks.
Yields on the 10-year Treasury note dropped to 1.494%, from a year-on-year rise of 1.614%, but still surprisingly rose 40 basis points in the month, the biggest movement since 2016.
“The fixed income route is shifting to a more lethal phase for risky assets,” said Damien McColough, head of fee strategy at Westpac.
“The rise in yields has long been seen primarily as a story of improving growth expectations, if anything by increasing risky assets, but the overnight movement has notably included a sharp increase in real rates and an anticipation of expectations for increased growth. Fed. ”
The markets were hedging the risk of an earlier Federal Reserve rate hike, although officials this week promised that any move would be long in the future.
Fed fund futures are now almost fully priced at an increase of 0.25% through January 2023, while eurodollars are discounted for June 2022.
Even the thought of an eventual end to super-cheap money has caused chills in global stock markets, which have regularly hit record highs and lengthened valuations.
The broader MSCI index for Asia-Pacific equities outside Japan fell 2.4% to its lowest one-month value, while Japan’s Nikkei fell 2.5%.
Chinese blue chips joined the decline with a 2.5% drop.
NASDAQ futures fell 0.5% after a sharp overnight drop, while S&P 500 futures decreased 0.1%. EUROSTOXX 50 futures lost 1.2% and FTSE futures 1.1%.
EMERGING TENSIONS
Overnight, the Dow fell 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest drop in almost four months for the high-tech index.
All the darlings of technology have suffered, with Apple Inc, Tesla Inc, Amazon.com Inc, NVIDIA Corp and Microsoft Corp the biggest obstacles.
All of this has raised the importance of US personal consumption data, which will be released on Friday, which includes one of the inflation measures favored by the Fed.
Core inflation is expected to drop to 1.4% in January, which could help ease market anxiety, but any upward surprise would likely accelerate the bond’s meltdown.
The rise in Treasury yields also caused problems in emerging markets, which feared that the best returns offered in the United States could attract funds.
All currencies favored for leveraged carry trades were hurt, including the Brazilian real, the Turkish lira and the South African rand.
The flows helped to boost the US dollar more broadly, with the dollar index rising to 90.360. It also gained in the low-yield yen, briefly hitting the highest level since September at 106.42. The euro fell slightly to $ 1.2152.
The jump in yields has tainted gold, which offers no fixed return, and dragged it to $ 1,767 an ounce, compared to the week’s high of around $ 1,815.
However, ANZ analysts were more optimistic about the outlook.
“We now expect US inflation to reach 2.5% this year,” they said in a note. “Combined with the additional depreciation of the US dollar, we see the fair value of gold at $ 2,000 / ounce in the second half of the year.”
Oil prices have remained close to 13-month highs, with profit making limited by a sharp drop in U.S. oil production last week due to the Texas winter storm. [O/R]
US crude oil fell 44 cents to $ 63.08 a barrel and Brent lost 33 cents to $ 66.55.