SYDNEY (Reuters) – Asian stock markets decelerated on Friday, with rising global bond yields souring sentiment towards high-priced tech stocks, while a stampede of crammed crude positions caused the biggest setback in months.
After plummeting 7% overnight, Brent oil futures fell another 38 cents, to $ 62.90 a barrel, while US oil fell 35 cents to $ 59.65. [O/R]
The withdrawal eliminated four weeks of gains in a single session and could mark the end of a five-month bullish run.
The stock was also unstable, as a retraction on Wall Street knocked Japan’s Nikkei down 0.7% and South Korea 1%. The broader MSCI index for Asia Pacific stocks outside Japan fell by 0.5%.
Nasdaq futures were up 0.1%, after a sharp 3% drop overnight, while S&P 500 futures added 0.2%.
Markets are now prepared for the outcome of a Bank of Japan policy meeting, in which it is expected to loosen control of bond yields and reduce the purchase of ETFs, adjustments aimed at making the stimulus package more sustainable.
Investors are still reflecting on the US Federal Reserve’s pledge to keep rates close to zero until 2024, even as economic growth and inflation forecasts rise.
Fed Chairman Jerome Powell seems likely to deliver the dovish message next week, with no fewer than three appearances scheduled.
“Stronger growth and higher inflation, but without raising rates, is a potent cocktail for risky assets and stock markets,” said economist Andrew Ticehurst of Nomura.
“The message for the bonds is more confusing: although the anchoring of the short leg is positive, market participants may start to worry that the predicted increase in inflation is not temporary and that the Fed is at risk of overestimating it ”.
Yields on U.S. 10-year banknotes reached their highest peak since the beginning of 2020, at 1.754% and stood at 1.72%. If sustained, this would be the seventh consecutive week of increases in the value of a whopping 64 basis points in total.
The drastic downward slope of the yield curve reflects the risk that the Fed is serious about keeping short-term rates low until inflation accelerates, thus requiring long-term bonds to offer higher returns to compensate.
BofA’s latest investor survey showed that rising inflation and the bond “rabies crisis” replaced COVID-19 as its number one risk.
Although still very optimistic about the economic growth, profits and stocks of the companies, the interviewees feared a strong setback for the shares, if the 10-year yields exceeded 2%.
The jump in Treasury yields has provided some support for the US dollar, although analysts worry that faster US economic growth will also widen the current account deficit to levels that will ultimately drag the currency.
For now, the dollar index jumped to 91.855, from a low of 91.30, to make it a little firmer for the week.
It also rose in the low-yielding yen to 109.01, close to the recent 10-month top of 109.36. The euro fell to $ 1.1914, having repeatedly failed to break the resistance at $ 1.1990 / 1.2000.
The rise in yields weighed on gold, which offers no fixed return, and left it stable at $ 1,732 an ounce.
Additional reporting by Elizabeth Dilts Marshall; Editing by Shri Navaratnam