© Reuters. FILE PHOTO: A man walks past a quotation from a broker in Tokyo, Japan
Posted by Wayne Cole
SYDNEY (Reuters) – Asian equity markets fell on Friday as a surge in global bond yields hurt sentiment towards high-priced technology stocks, while a rush of overcrowded crude oil positions caused its biggest setback in months.
After falling 7% overnight, futures fell another 38 cents to $ 62.90 a barrel, while they fell 35 cents to $ 59.65. [O/R]
The retreat wiped out four weeks of gains in a single session and could mark the end of a five month bull run.
Stocks were also troubled as a retreat on Wall Street slumped 0.7% and South Korea slumped 1%. MSCI’s broadest index for stocks in the Asia-Pacific region outside of Japan followed with a decline of 0.5%.
After a sharp 3% drop overnight, Nasdaq futures rose 0.1% while rising 0.2%.
Markets are now prepared for the outcome of a Bank of Japan political meeting that is widely expected to ease control over bond yields and limit purchases of ETFs to make the stimulus package more sustainable.
Investors are still pondering the Fed’s promise to keep rates near zero through 2024, despite upward forecasts for economic growth and inflation.
Fed chairman Jerome Powell is likely to bring home the low-key message in no less than three appearances next week.
“Stronger growth and higher inflation, but no rate hikes, are a strong cocktail for risk-weighted assets and stock markets,” said Nomura economist Andrew Ticehurst.
“The message for bonds is more mixed: while the short-end anchoring is positive, market participants may fear that the projected rise in inflation will not be temporary and the Fed is taking the risk of boiling it off.”
Yields on 10-year US bonds hit 1.754%, their highest level since early 2020, most recently at 1.72%. If it stays that way, it would be the seventh straight week of increases totaling 64 basis points.
The sharp regressive steepness of the yield curve reflects the risk that the Fed is serious about keeping short-term interest rates low until inflation accelerates. Therefore, longer-term bonds must offer thicker yields to compensate.
The latest BofA survey of investors showed that rising inflation and the bond’s “taper tantrum” had replaced COVID-19 as the main risk.
While economic growth, corporate earnings and stocks were still very bullish, respondents feared a major setback for stocks if 10-year returns surpass 2%.
The rise in government bond yields supported the US dollar somewhat, although analysts fear that faster US economic growth will also widen the current account deficit to levels that will ultimately weigh on the currency.
For now, the value had risen from 91.30 to 91.855 to make it a little firmer for the week.
The low-yielding yen also rose to 109.01, just below its recent 10-month high of 109.36. The euro fell to $ 1.1914 after repeatedly failing to break the $ 1.1990 / $ 1.2000 resistance.
The rise in yields has weighed on gold, which does not offer a fixed rate of return, and left it unchanged at $ 1,732 an ounce.
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