Asian stocks slide after Wall Street worries about fallout from rate hike

By Alun John

HONG KONG (Reuters) – Asian stocks fell on Friday as U.S. dollar and Treasury yields rose in a reversal from the previous day after investors raised concerns that rising interest rates could harm global economic growth.

The market fears that the US Federal Reserve and some other major central banks may be forced to raise interest rates even more aggressively than expected to fight runaway inflation, which could push economies into a recession.

US payrolls data, due later on Friday, will help the market gauge the strength of the economy.

MSCI’s broadest index of Asia-Pacific stocks outside Japan lost 2.34% on Friday morning and is down 3.5% from last Friday’s close. Japan’s Nikkei were flat when they returned from a three-day vacation.

Overnight on Wall Street, the Dow Jones Industrial Average and S&P 500 both fell more than 3%, and the Nasdaq Composite lost 4.99% in its biggest one-day drop since June 2020 for close at its lowest level since November 2020.

It was a reversal from 24 hours earlier when Asian stocks opened higher after the S&P 500 posted its biggest one-day percentage gain in nearly two years on Wednesday.

“It was described in a news report I read this morning as the ‘Great Puking’, which seems appropriate,” Rob Carnell, head of research at ING Asia, said of the rapid turnaround in a note from the morning to customers.

According to the CME’s FedWatch tool, the market is pricing an 82% chance of a monstrous 75 basis point Fed rate hike at its June meeting, even after the Fed raised rates by 50 basis points. basis this week and that Powell has ruled out a 75 basis point hike.

“Risks remain high for a policy mistake – either because (the Fed) is not tightening fast enough to fight inflation, or by being too hawkish, leading to the end of the current economic cycle,” David Chao said. , Global Market Strategist, APAC ex-Japan, at Invesco.

Chao said U.S. and Asia-Pacific equities may continue to experience “a bit of volatility” and U.S. yields may continue to rise, but he expects post-Omicron reopening momentum helps support US growth despite Fed policy normalization.

US yields rise on expectations of a rapid pace of rate hikes. The yield on US 10-year bonds was 3.084% on Friday morning after crossing 3.1% overnight for the first time since November 2018.

A firm commitment by Chinese leaders to maintaining a zero-COVID strategy has raised fears about the health of the country’s economy, while the ongoing war in Ukraine is also hurting risk sentiment.

Chinese blue chips fell 2% on Friday and Hong Kong’s benchmark lost 2.44%.

The overseas-traded Chinese yuan fell to an 18-month low of 6.7338 to the dollar.

As investors turned to less risky assets, the dollar index was at 103.67 on Friday morning, after hitting a new 20-year high at 103.94 overnight, buoyed by expectations that United States will raise interest rates faster than other central banks.

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

Bitcoin, one of the most risk-friendly assets, fell 8% overnight and hit a two-and-a-half-month low. It was last trading around $36,300.

Oil prices tumbled at the start of Asian trade, with concerns over an economic slowdown outweighing concerns over further EU sanctions on Russia, including a crude oil embargo.

Brent crude futures fell 0.5% to $110.3 a barrel. U.S. crude fell 0.56% to $107.67 a barrel.

Gold fell 0.3% to $1,870.7 an ounce.

(Reporting by Alun John; Editing by Jamie Freed)

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