Asian stocks followed global stocks lower after fears of faster monetary policy tightening by central banks delivered the worst day on Wall Street in nearly five months.
Japan led the declines in Asian markets on Wednesday morning, with the Topix down 2.6%, while the Australian benchmark S & P / ASX 200 fell 1.8% and the Hang Seng index of Hong Kong and China’s CSI 300 both lost around 1% in morning trading.
The stock market sell-off comes after policymakers at the U.S. Federal Reserve and the Bank of England signaled that interest rate hikes could come sooner than markets expected due to the persistence of ‘high inflation.
The prospect of faster tightening has pushed up yields, which move inversely with bond prices. The yield on 10-year US Treasury bonds jumped 0.2 percentage points over the past week, spurring further sales of shares. The S&P 500 closed 2% lower on Tuesday, its worst one-day drop since May, while the technology-focused Nasdaq Composite Index fell 2.8%.
The Fed said last week it could cut its $ 120 billion monthly asset purchases and reported that half of its board members expected interest rates to rise in 2022. This was followed by a warning from the Bank of England that UK inflation could exceed 4 percent next year.
âIt doesn’t really seem like an optimal backdrop as we approach the fourth quarter,â said Robert Carnell, head of Asia-Pacific research at ING, highlighting rising Treasury yields, soaring prices of the energy and concerns about contagion from the indebted Chinese developer. Evergrande, which rocked global markets last week.
The yen continued to slide against the US dollar on Wednesday, with the Japanese currency briefly touching its lowest level since March 2020 after falling around 2% since last week.
The yen hit 111.68 yen to the US dollar amid political uncertainty surrounding the selection of the new Japanese prime minister by members of the Liberal Democratic Party in power today.
Traders said it was difficult to see the currency break back and forth until the outcome was known, adding that the yen acted as a double barometer of sentiment on rising US yields and rising prices for US dollars. raw materials.
Higher US yields would attract fixed income investment flows from Japan, said Shusuke Yamada, head of Japanese equities and FX strategist at Bank of America. Japan’s trade deficit in August, meanwhile, was a signal of the country’s sensitivity to higher priced imports.
Concerns about inflation have been magnified by soaring global commodity prices. Brent, the international benchmark, exceeded $ 80 a barrel on Tuesday for the first time since October 2018, as soaring natural gas prices prompted countries to look elsewhere for their energy needs.
Oil prices were down in Asian trading on Wednesday, with Brent losing about 1% to $ 78.19 a barrel.