Pedestrians wearing protective masks are reflected in an electronic board displaying the stock prices of various companies outside a brokerage office in Tokyo, Japan, amid the outbreak of the coronavirus disease (COVID-19), amid the outbreak of the coronavirus disease (COVID-19). REUTERS/Kim Kyung Hoon
- >Asian equity markets :
- Asian stocks fall on the possibility of aggressive Fed tightening
- Nikkei down nearly 2%, Hong Kong moves away from 1-month high
- China’s service sector activity shrinks on COVID survey
- US yields climb to multi-year highs, boosting the dollar
TOKYO, April 6 – Asian stock markets tumbled on Wednesday as investors faced the possibility of aggressive monetary tightening by the US Federal Reserve to fight inflation amid focus also on new Western sanctions against Russia because of his invasion of Ukraine.
US Treasury yields hit multi-year highs and stock markets were red after Fed Governor Lael Brainard said overnight that she expects a combination of rate hikes and a rapid balance sheet outflow to turn US monetary policy into a slump later this year “more neutral position” will bring . Continue reading
Japan’s Nikkei (.N225) shed 1.7%, while the MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) fell 1.4%.
European markets are also likely to open lower. EUROSTOXX 50 futures were down 0.4% and FTSE futures were flat. S&P500 futures fell 0.1%.
Investors’ focus on Wednesday will be on the release of minutes from the Fed’s latest monetary policy meeting, which they will scrutinize for clues to the prospect of a 50 basis point hike at the next Federal Reserve meeting in May.
“There is currently an estimated 80% chance that the Fed will go this route,” said Kyle Rodda, a market analyst at IG in Melbourne. Investors have yet to fully price in such a move, so greater evidence could move markets, Rodda added.
“The Fed could also be expected to rise by 50 basis points in June and if that becomes more likely, a reassessment of these risks could trigger a further increase in volatility,” he said.
The yield on the benchmark 10-year Treasury bond rose to a near three-year high of 2.631% on Wednesday as a bond sell-off continued following Brainard’s comments.
The US 2-year yield rose to its highest since January 2019 and the 5-year yield to its highest since December 2018.
China’s markets also drew attention after data released on Wednesday showed service sector activity contracted in March at its fastest pace in two years as a wave of coronavirus infections curtailed mobility and weighed on customer demand, a closely watched one Private sector survey found. Continue reading
Hong Kong’s Hang Seng Index (.HSI) slipped 1.4% after returning from a holiday, pulling away from a one-month high hit on Monday, while Chinese blue chips (.CSI300) shed 0.46%.
On Tuesday, despite growing anger over quarantine rules, Chinese authorities extended a COVID-19 lockdown in Shanghai to cover all of the financial hub’s 26 million people. Continue reading
The jump in yields following Brainard’s comments also played out in the FX market, supporting the dollar.
The dollar index hit 99.640, its highest level since late May 2020 in early trade, also helped by a decline in the euro, which hit near a monthly low of $1.0889, weighed down by fears that more sanctions on Russia will hurt the European economy would.
The United States and its allies will impose new sanctions on Russian banks and officials on Wednesday, banning new investments there, the White House said. Continue reading
The greenback was also trading higher against the yen at 123.98 yen amid the Bank of Japan’s belief and repeated actions over the past week to keep the 10-year Japanese government bond yield below 0.25%.
The rise in bond yields around the world has put pressure on non-yielding gold.
Spot gold traded up 0.16% to $1,928.8 an ounce.
Oil prices rebounded from early losses as the threat of new sanctions on Russia raised supply concerns, but there were fears of weaker demand following a surge in US crude stocks and the extended lockdown in Shanghai.
US crude was unchanged at $101.96 a barrel. Brent crude rose 0.3% to $106.96 a barrel.
Reporting by Daniel Leussink; additional reporting by Alun John in Hong Kong Editing by Sam Holmes, Robert Birsel