NEW YORK, March 4 (Reuters) – Asian stocks plummeted on Friday, with rising US Treasury yields again rocking investors as they raised the dollar to a three-month high, which in turn dragged the Japanese yen to an eight-month low.
Energy markets were also not spared volatility, with oil prices rising more than 5% overnight to their highest value in more than a year, after OPEC and its allies agreed to maintain production unchanged until April, as the recovery in demand from the coronavirus pandemic was still fragile.
In Friday’s trade, Australian stocks fell 1%, Japan’s Nikkei stock average fell 0.7%, Seoul shares fell 0.24% and E-Mini S&P futures fell slightly, to 0.04%.
US stocks fell sharply on Thursday after Federal Reserve Chairman Jerome Powell disappointed some investors by not indicating that the Fed could increase long-term bond purchases to keep long-term interest rates low. .
The high-tech Nasdaq Composite fell 2.1%, bringing it down about 10% from the record close of February 12 and placing it in correction territory.
Even though Powell made it clear that the Fed was not close to changing its ultra-loose monetary policy stance anytime soon, some analysts still fear that increased Treasury yields could mean higher borrowing costs, thus limiting the fragile economic recovery from the USA.
“The US dollar gained 0.8% and then you see the sacred trinity of market fears – rising real rates, rising expectations for rate hikes and a stronger US dollar,” said Chris Weston, head of research at Pepperstone Markets Ltd, a foreign exchange broker, in Australia.
Bond investors with a pessimistic view of Treasury bills were encouraged by Powell’s comments and sold the notes. Yield on 10-year Treasury bonds rose above 1.5% to as high as 1.5727%, but still below the 1.614% year-on-year high achieved last week.
The yield curve, a measure of economic expectations, increased yields upward, with the difference between two- and 10-year yields increasing by another 6.3 basis points overnight.
The increase in Treasury yields has driven demand for the dollar. The dollar index jumped 0.61% against a basket of major currencies, to 91.651, against a three-month high of 91.663.
A stronger dollar hurt the yen. At the start of Friday, the yen was weak at 107.95, a level not seen since July 1.
The euro was also hurt by a firmer dollar, with the common currency decelerating by $ 1.19665.
Rising yields and the strength of the dollar have shaken gold prices, which fell to the lowest drop in nine months, as investors sold the precious metal to reduce the opportunity cost of keeping the asset non-productive.
Spot gold fell an additional 0.2% on Friday to $ 1,694,0600 an ounce, trading below $ 1,700 for the first time since June 2020.
Oil prices, on the other hand, widened gains on Friday after rising more overnight.
U.S. oil futures rose 0.85% to $ 64.38 a barrel, after climbing its January 2020 peak of $ 64.86 overnight. Analysts said OPEC’s decision not to increase production in April, as many expected, showed what it is prepared to do to deplete excess inventory and keep prices high.
In the cryptocurrency market, bitcoin reduced losses overnight and fell 3.8% to $ 48,473 earlier on Friday.
Reporting by Koh Gui Qing; Editing by Sam Holmes