SYDNEY - Global stocks hit a two-year low on Friday and bonds eyed big weekly losses as the prospect of US interest rates rising further and faster than expected rattled investors, while a surging US dollar had currency markets skittish following Japan’s intervention.
Interest rates rose sharply this week in the United States, Britain, Sweden, Switzerland and Norway, among other places, but it was the Federal Reserve's outlook for persistently high US rates till 2023 that set off the latest round of selling.
MSCI’s world stocks index touched its lowest since mid-2020 on Friday and is down about 12 per cent in the month or so since Fed chair Jerome Powell made clear that bringing down inflation would hurt.
S&P 500 futures struggled to steady in the Asia session and fell 0.1 per cent, while European futures were flat. MSCI’s index of Asia shares outside Japan fell 1 per cent. Unless it bounces, it is on course for the worst month since March 2020.
Singapore’s Straits Times Index was down 1.1 per cent at 2pm local time.
Australia’s S&P/ASX 200 Index tumbled 2 per cent, while South Korea’s Kospi index lost 1.8 per cent. Hong Kong’s Hang Seng Index dropped 0.8 per cent, while the Shanghai Composite Index fell 0.5 per cent.
Japan’s stock market was closed on Friday for a public holiday.
“It is reality coming through,” said Mr Sean Taylor, Asia-Pacific chief investment officer at DWS in Hong Kong.
“You had a market that believed rates were coming down next year... now that has changed a lot, and the equity market is now adjusting to that,” he said.
Bond and currency markets are also unmoored, with the latest lift in US rates extending a rally in the US dollar that is starting to cause some discomfort for trading partners.
The euro and yen fell to 20-year lows on Thursday, until the Japanese authorities stepped into the market for the first time since 1998 to buy yen and arrest its long slide.
The resultant spike has the yen up to 142.20 per dollar and on course for its best week in more than a month, though analysts say the currency’s respite is likely to be short-lived.
The Singapore dollar, which weakened to a 29-month low against the US dollar on Thursday, was trading at 1.4194 to the greenback at 2.06pm local time, dipping 0.06 per cent from the previous day.
Other currencies were struggling for traction. The euro was at US$0.9825, barely above its low of US$0.9807.
The Australian and New Zealand dollars hovered near their lowest levels since mid-2020, sterling was parked by its lowest in nearly four decades and, at 7.1028 per dollar, China’s renminbi was within striking distance of a record low.
Bond markets have been in meltdown as both investors and policymakers grapple with how far short-term rates will need to rise to tame runaway inflation around the world.
Britain is a case in point. On Thursday, a divided Bank of England hiked rates by 50 basis points, disappointing currency traders.
Two-year yields for British government bonds, called gilts, are up nearly 50 basis points this week, on track for their worst week in 13 years.
Later on Friday, new finance minister Kwasi Kwarteng will announce a fiscal plan that is probably inflationary and even more bad news for gilts.
US Treasuries did not trade in Asia owing to a public holiday in Japan, but longer-dated issues were dumped overnight, sending the 10-year yield up about 20 basis points to 3.71 per cent.
In commodity markets, oil was on track for a small weekly loss as rate hikes raise demand concerns. Brent crude futures hovered at US$90.07 a barrel in Asia on Friday.
Gold, which pays no income, has suffered as US yields have gone up and it was last flat at US$1,669 an ounce.
Bitcoin has been likewise battered amid the flight from risky assets and held at US$19,423. REUTERS