SYDNEY / MIAMI (Reuters) – Asian stocks fell to a month-long low on Friday as a defeat in global bond markets sent yields soaring and scared investors for fear the heavy losses could lead to ailing sale of other assets .
The magnitude of the sell-off prompted the Australian central bank to launch a surprise bond buy-back to try to stop the bleeding, pushing yields off early peaks there.
The 10-year Treasury yield fell back to 1.494% from its one-year high of 1.614%, but still rose a surprising 40 basis points for the month in its biggest move since 2016.
“The fixed income route is shifting to a more lethal phase for risky assets,” said Damien McColough, Westpac’s chief interest rate strategy.
“For a long time, the rise in interest rates was mainly seen as a story of improving growth expectations, possibly filling up risky assets, but the overnight movement included notably a sharp rise in real interest rates and raising the expectations of the Fed. “
Markets hedged the risk of a previous Federal Reserve rate hike, although officials this week promised that each step would be in the future.
Fed fund futures are now almost fully priced for an increase to 0.25% in January 2023, while Eurodollars have discounted it for June 2022.
Even the thought of an eventual end to super cheap money sent shivers to global stock markets that regularly hit record highs and pushed up valuations.
MSCI’s widest index of Asia-Pacific stocks outside Japan fell 2.4% to its one-month low, while Japan’s Nikkei lost 2.5%.
Chinese blue chips joined the retreat with a drop of 2.5%.
NASDAQ futures fell 0.5% after a sharp overnight drop, while S&P 500 futures lost 0.1%. EUROSTOXX 50 futures lost 1.2% and FTSE futures 1.1%.
EMERGING SPECIES
Overnight, the Dow lost 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest drop in nearly four months for the tech-heavy index.
Tech darlings are all members, with Apple Inc, Tesla Inc, Amazon.com Inc, NVIDIA Corp and Microsoft Corp the biggest drag.
All of that added to the importance of US personal consumption data expected later on Friday, including one of the Fed’s favorite inflation measures.
Core inflation is expected to fall to 1.4% in January, which could help calm market fears, but any upside surprise would likely accelerate the bond routine.
The surge in government bond yields also caused rips in emerging markets, which feared that better yields in the United States would attract money.
Preferred currencies for leveraged carry trades all suffered, including the Brazilian real, Turkish lira and South African rand.
The flows helped push the US dollar broader, with the dollar index rising to 90,360. It also made gains on the low-yielding yen, briefly hitting its high since September at 106.42. The euro brought in slightly less to $ 1.2152.
The rise in yields has eroded gold, which offers no fixed returns, cutting it down to $ 1,767 an ounce from the week’s high of $ 1,815.
Analysts at ANZ, however, were more optimistic about the outlook.
“We now expect US inflation to hit 2.5% this year,” they said in a note. “Coupled with further depreciation of the US dollar, we see the fair value of gold at $ 2,000 / oz in the second half of the year.”
Oil prices held up near their 13-month high, with profit-taking limited by a sharp drop in US oil production last week following the Texas winter storm. [O/R]
US crude oil fell 44 cents to $ 63.08 a barrel and Brent was down 33 cents to $ 66.55.