Asia shares slide after Wall Street rout on inflation, growth fears; STI down 1.4%

HONG KONG (REUTERS) - Asian shares tumbled on Friday (May 6), while the US dollar and Treasury yields rose in a reversal of a day earlier, after investors expressed concerns that rising inflation and interest rates could hurt global economic growth.

The market fears that the United States Federal Reserve and some other major central banks will have to raise interest rates even more aggressively than planned to combat red-hot inflation, potentially pushing economies into a recession.

US jobs data due at 8.30pm Singapore time on Friday will help the market gauge how tight the US labour market is, potentially driving inflation higher.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 2.34 per cent on Friday morning and is down 3.5 per cent from last Friday's close. Japan's Nikkei was flat on its return from a three-day holiday.

Hong Kong's Hang Seng index and South Korea's Kospi index both tumbled 2.5 per cent, while the Shanghai Composite Index lost 1.3 per cent. Australia's S&P/ASX 200 fell 1.5 per cent.

Singapore's Straits Times Index was down 1.4 per cent as at 10.42am.

Overnight on Wall Street, the Dow Jones Industrial Average and the S&P 500 both fell more than 3 per cent, and the Nasdaq Composite shed 4.99 per cent in its biggest single-day plunge since June 2020 to close at its lowest level since November 2020.

This was a reversal of the situation 24 hours earlier when Asian shares opened higher after the S&P 500 recorded its biggest one-day percentage gain in nearly two years on Wednesday.

"It has been described in one news story I read this morning as the 'Great Puking', which seems appropriate," ING Asia head of research Rob Carnell said of the rapid U-turn in a morning note to clients.

The market is pricing in an 82 per cent chance of a monster 75-basis point rate hike from the Fed at its meeting in June, according to CME's FedWatch tool, even after the Fed raised rates by 50 basis points this week and Fed chair Jerome Powell ruled out a 75-basis point hike.

"Risks remain elevated for a policy mistake - either by (the Fed) not tightening quickly enough to combat inflation or being overly hawkish, resulting in the end of the current business cycle," said Mr David Chao, global market strategist for Asia-Pacific ex-Japan at Invesco.

Mr Chao said US and Asia-Pacific equities could continue to experience "a bit of volatility" and US yields might keep rising, but he expected that momentum from the post-Omicron reopening would help support US growth despite Fed policy normalisation.

US bond yields are rising on expectations of a fast pace of rate hikes. The yield on US 10-year notes was 3.084 per cent on Friday morning after crossing 3.1 per cent overnight for the first time since November 2018.

A firm commitment by Chinese leaders to maintain a zero-Covid-19 strategy raised fears about the health of China's economy, while the ongoing war in Ukraine is also hurting sentiment towards risk.

Chinese blue chips fell 2 per cent on Friday and the Hong Kong benchmark shed 2.44 per cent.

China's renminbi traded offshore tumbled to an 18-month low of 6.7338 per US dollar.

As investors moved towards less risky assets, the dollar index was at 103.67 on Friday morning, having hit a fresh 20-year peak of 103.94 overnight supported by expectations the US will hike interest rates faster than other central banks.

The pound, for example, fell 2.2 per cent against the dollar on Thursday. The Bank of England raised rates by 25 basis points as expected but two policymakers expressed caution about rushing into future rate hikes.

Bitcoin, one of the risk-friendliest assets, tumbled 8 per cent overnight and hit a 2½-month low. It was last trading at around US$36,300.

Oil prices dipped at the start of Asian trade as worries about an economic downturn outweighed concerns over fresh European Union sanctions against Russia, including a crude oil embargo.

Brent futures fell 0.5 per cent to US$110.3 a barrel. US crude lost 0.56 per cent to US$107.67 a barrel.

Gold shed 0.3 per cent to US$1870.7 an ounce.