SYDNEY / MIAMI (Reuters) – Asian equities hit a one-month low on Friday as a fall in global bond markets sent returns and scared investors amid fears that heavy losses could lead to distressed sales in other assets.
The magnitude of the sale prompted the Australian central bank to launch a surprise bond-buying operation to try to curb the bleeding, helping yields there out of the first peaks.
10-year Treasury bill yields fell to 1.494% from a one-year high of 1.614%, but still rose the staggering 40 basis points of the month to the greatest extent since 2016 .
“The fixed income routine is becoming a more lethal phase for risky assets,” says Damien McColough, head of rates strategy at Westpac.
“Rising yields have long been seen as a history of improving growth expectations, at least that clarifies risky assets, but the overnight move mostly included a sharp rise in real rates and an advance in Fed withdrawal expectations “
Markets were covering the risk of a previous Federal Reserve rate hike, although officials this week promised any measures would be long in the future.
Futures on Fed funds now have an almost total price for a 0.25% rise in January 2023, while Eurodollars have it discounted for June 2022.
Even the idea of a final end to super cheap money shook the global stock markets that have been regularly reaching all-time highs and stretching valuations.
MSCI’s broader Asia-Pacific stock index outside Japan fell 2.4% to a one-month low, while Japan’s Nikkei fell 2.5%.
Chinese blue chips joined the withdrawal with a 2.5% drop.
NASDAQ futures fell 0.5% after a sharp fall overnight, while S&P 500 futures fell 0.1%. EUROSTOXX 50 futures lost 1.2% and FTSE futures 1.1%.
EMERGING ROPES
Overnight, the Dow had fallen 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest drop in almost four months of the heavy technology index .
All technology lovers suffered, with Apple Inc., Tesla Inc., Amazon.com Inc., NVIDIA Corp. and Microsoft Corp. the biggest drags.
All of this raised the importance of U.S. personal consumption data to be released later Friday, which includes one of the Fed-favored inflation measures.
Core inflation is expected to fall to 1.4% in January, which could help calm market anxiety, but any upside surprise would likely accelerate the fall in bonds.
Rising Treasury yields also led to declines in emerging markets, which feared that better supply yields in the United States could attract funds.
All leverage-favored currencies, including the Brazilian real, the Turkish lira and the South African rand.
Flows helped propel the U.S. dollar more broadly, with a dollar index rising to 90,360. It also gained in the low-yielding yen, briefly reaching its highest since September, at 106.42. The euro eased a touchdown to $ 1.2152.
The jump in yields has littered gold, which offers no fixed return, and dragged it to $ 1,767 an ounce from a week high of around $ 1,815.
However, ANZ analysts were more optimistic about the outlook.
“We now expect U.S. inflation to reach 2.5% this year,” they said in a note. “Combined with a further depreciation of the US dollar, we see that the fair value of gold is $ 2,000 / oz in the second half of the year.”
Oil prices remained close to 13-month highs, with profit-taking limited by a sharp drop in U.S. crude production last week due to the winter storm in Texas. [O/R]
U.S. crude fell 44 cents to $ 63.08 a barrel, and Brent lost 33 cents to $ 66.55.