SYDNEY (Reuters) – Asian stock markets declined on Friday as a rise in world bond yields weakened sentiment towards cheap tech stocks, while a rush of crude oil positions caused the sharpest setback in months.
After falling 7% overnight, the Brent crude futures contract fell another 38 cents to $ 62.90 a barrel, while US crude oil plunged 35 cents to $ 59.65. [O/R]
The retreat eliminated four weeks of gains in a single session and could be the end of a five-month run.
Shares were also uncomfortable as the withdrawal on Wall Street dropped the Japanese Nikkei by 0.7% and South Korea by 1%. MSCI’s broadest index of Asia-Pacific stocks outside Japan followed with a decline of 0.5%.
Nasdaq futures rose 0.1%, after a sharp 3% drop overnight, while S&P 500 futures added 0.2%.
The markets are now focused on the outcome of a policy meeting of the Bank of Japan, where it is generally expected to weaken control over bond yields and weaken the purchase of ETFs, aimed at making the stimulus package more sustainable.
Investors are still reflecting on the US Federal Reserve’s promise to keep rates until 2024, even if it raises forecasts for economic growth and inflation.
Fed Chairman Jerome Powell is likely to drive home the devilish message next week with no fewer than three appearances.
“Stronger growth and higher inflation, but no interest rate hikes, is a powerful cocktail for risk assets and stock markets,” said Nomura economist Andrew Ticehurst.
“The message for bonds is more mixed: although the short of the short-term is positive, market participants may worry that the predicted rise in inflation will not be temporary and that the Fed may take the risk ‘too cooked’.”
Yields on US 10-year notes have risen to their highest since early 2020 at 1.754% and last at 1.72%. If sustained, it will be the seventh consecutive week of increases worth a total of 64 basis points.
The drastic weakening of the yield rate reflects the risk that the Fed is serious about keeping short-term rates low until inflation accelerates, and therefore long-term effects should provide fatter yields to compensate.
The latest BofA survey among investors showed that rising inflation and the ‘taper tantrum’ of the bond replaced COVID-19 as their biggest risk.
Although economic growth, operating earnings and equities remained strong, respondents feared a sharp downturn in equities if ten-year returns exceeded 2%.
The rise in treasury yields has given the US dollar some support, although analysts fear that faster US economic growth will also increase the current account deficit to levels that will eventually affect the currency.
For now, the dollar index jumped back to 911,855, from a low of 91.30 to make it slightly firmer for the week.
It also rose on the low-yield yen to 109.01, just below the recent ten-month high of 109.36. The euro fell back to $ 1.1914, after repeatedly failing to crack the resistance at $ 1.1990 / 1.2000.
The increase in yields weighs gold, which offers no fixed yield, leaving it flat at $ 1,732 per ounce.
Additional reporting by Elizabeth Dilts Marshall; Edited by Shri Navaratnam