©Reuters. FILE PHOTO: A man looks at stock market monitors in Taipei January 22, 2008. REUTERS/Nicky Loh/File Photo
By Kevin Buckland
TOKYO (Reuters) – Asian stocks fell and bond yields rose on Monday as blistering inflation reignited worries of even more aggressive US interest rate hikes, while fresh mass testing of COVID-19 in China sparked concerns of even more crippling lockdowns.
Heightened expectations of US Federal Reserve interest rate hikes pushed the Japanese yen to more than two-decade lows against the dollar, prompting authorities to become more concerned about the sharp move lower.
MSCI’s Asia-Pacific stock index fell 2.66%.
The stock weakness was expected to extend into US and Europe trading, with futures pointing to a 1.67% drop for , a 1.4% drop for and a 0.77% drop for .
“It’s shaping up to be a Black Monday in Asia,” wrote Jeffrey Halley, senior market analyst at OANDA, in a note to clients.
“The R-word (is) on everyone’s lips now” amid “a scramble to reassess Fed hike expectations,” he wrote.
The focus in Asia has been on the risk of new COVID-19 lockdowns, with Beijing’s most populous district, Chaoyang, announcing three rounds of mass testing to quell a “wild” COVID-19 outbreak that emerged in a bar.
Shanghai conducted mass testing to stem a jump in cases linked to a hair salon.
Chinese blue chips fell 1.42% and Hong Kong suffered a 3.29% drop.
tumbled 3.03% and South Korea’s Kospi slipped 3.27%. Australian markets were closed for a public holiday.
“Anyone trying to find the bottom in China’s growth and stock markets on the basis that China was ‘one and done’ with lockdowns is naïve,” OANDA’s Halley said.
China’s growth stocks plummeted, with Hong Kong-listed tech giants falling 4.45%. Index heavyweights Alibaba (NYSE:), Tencent and Meituan each lost between 4% and 6%.
INFLATION CONCERNS
In currency markets, the dollar climbed to 135.22 yen, its highest level since October 1998, buoyed by a rise in Treasury yields that carried through into Tokyo trading.
The 10-year bond hit a more than one-month high at 3.202%, down just a tenth of a basis point from its highest level since November 2018.
This put upward pressure on Japanese government bond yields, with the 10-year bond pushing to a six-year high of 0.255%, half a basis point above the Bank of Japan’s 0.25% tolerance limit under its yield curve control policy. And that’s even amid the BOJ’s ongoing offer to buy unlimited amounts of the 10-year bond since April.
Violation of its ceiling prompted the central bank to announce an additional unscheduled purchase operation.
The US CPI rose 8.6% more-than-expected last month, the biggest year-on-year rise since December 1981, data on Friday showed.
That dashed hopes that inflation had peaked and instead put markets on alert that the Fed could tighten policy for too long and cause a sharp economic slowdown. The next political decision is due on Wednesday.
“Inflation data is game-changing, forcing the Fed to shift into higher gear and tighten policy,” Jefferies strategist Aneta Markowska wrote in a research note, calling for a 75 basis-point hike in this week’s decision .
Markets are currently pricing in 80% for a half-point hike and 20% for 75 basis points.
Two-year government bond yields, which are highly sensitive to policy expectations, rose as high as 3.194% in Tokyo on Monday, the first time since December 2007.
The , which measures the currency against six major rivals including the yen, rose to 104.58 for the first time in almost a month.
The euro fell as low as $1.04755 for the first time since May 19.
Leading cryptocurrency Bitcoin collapsed to its lowest level since December 2020 at $24,888.88.
Meanwhile, futures were down $1.81, or 1.48%, to $120.20 a barrel and US West Texas Intermediate Crude to $118.81 a barrel, down $1.86, or 1.54%. is equivalent to.