Asia equities spooked by spike in yields and oil sell-off

SYDNEY (Reuters) – Asian stock markets eased on Friday as a rally in global bond yields soured sentiment toward high-priced tech stocks, while a stampede of crowded positions in crude oil caused the setback. sharpest in months.

FILE PHOTO: A man walks past a stock listing meeting at a brokerage in Tokyo, Japan, on February 26, 2021. REUTERS / Kim Kyung-Hoon / File Photo

Having fallen 7% overnight, Brent crude futures fell another 38 cents to $ 62.90 a barrel, while US crude lost 35 cents to $ 59.65. [O/R]

The withdrawal ended four weeks of gains in a single session and could mark the end of a five-month bull run.

Stocks also faltered as a Wall Street pullback knocked Japan’s Nikkei 0.7% and South Korea 1%. MSCI’s broader Asia-Pacific stock index outside of Japan followed a 0.5% decline.

Nasdaq futures rose 0.1%, after a sharp 3% drop overnight, while S&P 500 futures added 0.2%.

Markets are now primed for the outcome of a Bank of Japan policy meeting where it is expected to loosen its grip on bond yields and cut back on ETF purchases – adjustments intended to make the stimulus package more sustainable.

Investors are still mulling the US Federal Reserve’s commitment to keep rates close to zero through 2024, even as it raised forecasts for economic growth and inflation.

It seems likely that Fed Chairman Jerome Powell will take home the dovish message next week with no fewer than three appearances lined up.

“Stronger growth and higher inflation, but without rate hikes, is a potent cocktail for risk assets and equity markets,” said Nomura economist Andrew Ticehurst.

“The message for bonds is more mixed: while the anchor of the short end is positive, market participants may become concerned that the expected rise in inflation is not temporary and that the Fed risks ‘overcooking it’. ‘”.

Yields on US 10-year notes soared to their highest level since early 2020 at 1.754% to 1.72%. If held, this would be the seventh consecutive week of increases totaling 64 basis points.

The drastic bearish slope of the yield curve reflects the risk that the Fed is serious about keeping short-term rates low until inflation accelerates, requiring longer-term bonds to offer higher yields to make up for.

BofA’s latest survey of investors showed that rising inflation and the bond “taper tantrum” had replaced COVID-19 as its number one risk.

While he remains highly optimistic about economic growth, company earnings, and stocks, respondents feared a sharp setback for stocks if 10-year returns exceed 2%.

The jump in Treasury yields provided some support for the US dollar, although analysts fear that faster US economic growth will also widen the current account deficit to levels that will eventually drag the currency down.

By now, the dollar index had rebounded to 91.855, from a low of 91.30 to make it a little firmer for the week.

It also rose with the underperforming yen to 109.01, just below the recent 10-month high of 109.36. The euro fell back to $ 1.1914, having repeatedly failed to break resistance at $ 1.1990 / 1.2000.

Rising yields have weighed on gold, which does not offer a fixed return, flattening it at $ 1,732 an ounce.

Additional reporting by Elizabeth Dilts Marshall; Edited by Shri Navaratnam


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