SYDNEY / MIAMI (Reuters) – Asian equities slipped to a one-month low on Friday as global bond markets flew yields and investors struggled to fear the heavy losses suffered could cause other assets to sell .
The scale of the sale prompted the central bank of Australia to launch a surprise buy-back to try to reduce the bleeding, and help yields there to reach early peaks.
Yields on the 10-year treasury note fell back to 1,494% from an annual high of 1.614%, but it was still a surprising 40 basis points for the month in the biggest step since 2016.
“The fixed-income route is entering a deadlier phase for risky assets,” says Damien McColough, Westpac’s tariff strategy.
‘The rise in yields has long been seen as a story of improving growth expectations, if anything, driving up risky assets, but the overnight movement in particular has included a sharp rise in real rates and an increase in Fed expectations .
Markets have covered the risk of an earlier Federal Reserve rate hike, though officials promised this week that any move would be long in the future.
The futures contracts of the Fed funds are now almost fully priced by January 2023 for a rise to 0.25%, while Eurodollars discount them for June 2022.
Even the thought of an ultimate end to super-cheap money has sent shivers through global stock markets, regularly reaching record highs and raising valuations.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 2.4% to a one-month low, while the Japanese Nikkei rose 2.5%.
Chinese blue chips joined the decline with a decline of 2.5%.
NASDAQ futures fell 0.5% after a sharp decline overnight, while S&P 500 futures eased 0.1%. EUROSTOXX 50 futures lost 1.2% and FTSE futures 1.1%.
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The Dow fell 1.75% overnight, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest drop in almost four months for the technical heavy index.
Technical darlings have all suffered, with Apple Inc., Tesla Inc., Amazon.com Inc., NVIDIA Corp. and Microsoft Corp. having the biggest wear.
All of this raises the importance of US personal consumption data available later on Friday, which includes one of the Fed’s preferred inflation measures.
Core inflation is expected to fall to 1.4% in January, which could help calm market anxiety, but any upside surprise is likely to accelerate the effects of the effects.
The surge in treasury yields also caused the rise in emerging markets, which feared that the better yields in the United States might attract funds.
Currencies preferred for leverage trading have all suffered, including the Brazilian real, Turkish lira and South African rand.
The flow helped push the U.S. dollar wider, with the dollar index rising to 90,360. It also rose on the yen with low yields and briefly reached the highest since September at 106.42. The euro eased a touchdown to $ 1.2152.
The rise in yields tossed gold, which offers no fixed yield, to $ 1,677 per ounce from the week’s high of around $ 1,815.
However, analysts at ANZ were more positive about the outlook.
“We now expect US inflation to reach 2.5% this year,” they said in a note. “Combined with further depreciation in the US dollar, we see the fair value of gold in the second half of the year at $ 2,000 per ounce.”
Oil prices peaked at 13-month highs, with profit margins 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.