NEW YORK, March 4 (Reuters) – Asian stocks swayed Friday as rising US Treasury yields confused equity investors again as the dollar hiked to a three-month high, in turn pushing the Japanese yen to one eight-month low.
Energy markets were also not spared volatility, with oil prices rising by more than 5% overnight to their highest level in more than a year, after OPEC and its allies agreed to keep production unchanged until April. as the recovery in demand after the coronavirus pandemic was still fragile.
In early Friday trading, Australian stocks lost 1%, Japan’s Nikkei stock lost an average of 0.7%, Seoul stocks fell 0.24% and E-Mini S&P futures were slightly lower at 0.04%.
US stocks fell sharply on Thursday after Federal Reserve Chairman Jerome Powell disappointed some investors by failing to indicate that the Fed could step up purchases of long-term bonds to keep longer interest rates low.
The tech-heavy Nasdaq Composite plummeted 2.1%, dropping it about 10% from the record that closed on Feb. 12, putting it in correction territory.
While Powell made it clear that the Fed would not change its ultra-loose monetary policy stance any time soon, some analysts were still concerned that rising government bond yields would usher in higher borrowing costs, thus limiting the fragile US economic recovery.
“The US dollar is up 0.8%, and there you see the holy trinity of market fear – rising real interest rates, higher expectations of rate hikes and a stronger US dollar,” said Chris Weston, the head of research at Pepperstone Markets Ltd. a foreign exchange broker, in Australia.
Bond investors with a bearish view of government bonds took Powell’s comments to heart and sold the bonds. The yield on 10-year government bonds climbed above 1.5% to even 1.5727%, but remained below the one-year high of 1.614% last week.
The yield curve, a measure of economic expectations, steeped as interest rates rose, widening the difference between two- and ten-year rates overnight by 6.3 basis points.
Rising government bond yields boosted demand for the dollar. The dollar index jumped 0.61% from a basket of major currencies to 91,651, ahead of a three-month high of 91,663.
A stronger dollar bumped the yen. Friday, the yen was weak at 107.95, a level not seen since July 1.
The euro was also toppled by a firmer dollar, with the common currency sluggish at $ 1.19665.
Rising yields and the strength of the dollar put pressure on the gold price, which fell to a nine-month low as investors sold the precious metal to lower the opportunity cost of holding the non-performing asset.
Spot gold fell an additional 0.2% to $ 1,694.06 an ounce early Friday, trading below $ 1,700 for the first time since June 2020.
Oil prices, on the other hand, rose early Friday after a higher overnight flight.
US crude oil futures climbed 0.85% to $ 64.38 a barrel, after scaling the January 2020 peak of $ 64.86 overnight. Analysts said OPEC’s decision not to increase production in April, as many expected, showed what it is willing to do to deplete surplus stocks and keep prices high.
In the cryptocurrency market, bitcoin narrowed losses overnight, declining 3.8% to $ 48,473 early Friday.
Reporting by Koh Gui Qing; Editing by Sam Holmes