“I think we probably were delusional six months ago with the rise of U.S. equities on hopes and prayers and the madness of the meme stocks, and suddenly we’re going a little bit back to what is reality,” he said. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2% to a 22-month low. Japan’s Nikkei fell 1.7%. Treasuries were steady in Asia, but selling at the short end and a rally at the longer end has flattened the yield curve as investors brace for near-term hikes to hurt long-run growth. The benchmark 10-year Treasury yield fell six basis points (bps) overnight and dropped a further 2.6 bps in Tokyo trade to 2.8967%. The gap between two-year and 10-year yields narrowed by 3.5 bps.
On Thursday, Asian markets sank to nearly two-year lows, while the dollar climbed to multi-year highs, as data revealed persistently high U.S. inflation, raising investor concerns about the economic toll of aggressive interest rate hikes to temper it. Following the announcement, US markets swung back and forth before closing significantly lower. In the Asia session, S&P 500 futures gave up early gains and fell 0.2 percent. European futures also sank, with the EuroSTOXX 50 futures falling 2% and the FTSE futures down 1.6 percent. Bitcoin plummeted 7% to $26,970, leading a fire-sale of risky assets as rate rises gain traction. It was near $40,000 a week ago and is now 60% lower than its six-month high. The growth-sensitive Australian and New Zealand dollars plummeted over 1% to near two-year lows. Headline U.S. consumer prices rose 8.3% for the 12 months to April, slower than the 8.5% pace of a month earlier, but higher than market forecasts for 8.1%. Traders said it underscored concern that rates will rise quickly in response. “We’re now very much embedded with at least two further (U.S.) hikes of 50 basis points on the agenda. For equity markets that is the end of free money,” said Damian Rooney, director of institutional sales at Argonaut in Perth.
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“There should be a tipping point in how far the Fed can be pressed before odds point towards a hard landing,” said NatWest Markets’ U.S. rates strategist Jan Nevruzi. SELL IN MAY The rates outlook is driving up the U.S. dollar and taking the heaviest toll on riskier assets that shot up through two years of stimulus and low-rate lending. The Nasdaq is down nearly 8% in May so far and more than 25% this year. Hong Kong’s Hang Seng Tech index slid 1.5% on Thursday and is off more than 30% this year. Cryptocurrency markets are also melting down, with the collapse of the so-called stablecoin TerraUSD highlighting the turmoil as well as the selling in bitcoin and next-biggest-crypto, ether. A weakening growth picture outside the United States is battering investor confidence, too, as the war in Ukraine threatens an energy crisis in Europe, and lengthening COVID-19 lockdowns in China throws another spanner into supply chain chaos.
Nomura estimated this week that 41 Chinese cities are in full or partial lockdowns, making up 30% of the country’s GDP. Property developer, Sunac China said it missed a bond interest payment and will miss more as China’s real estate sector remains in the grip of a credit crunch. The yuan fell to a 19-month low of 6.7631 and has dropped almost 6% in under a month. The Australian dollar fell 0.8% to a near two-year low of $0.6879. The kiwi slid by a similar margin to $0.6240, though the euro and yen held steady to keep the dollar index just shy of a two-decade peak. Sterling was at a two-year low of $1.2204. In commodity trade, oil wound back a bit of Wednesday’s surge as growth worries dampened fear of gas supply disruptions in Europe. Brent crude futures fell 1.3% to $106.90 a barrel. British activity and growth data are due later in the day.
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