© Reuters. Pedestrians are reflected in an electronic board showing various stock prices at a Tokyo broker
By Wayne Cole and Echo Wang
SYDNEY / MIAMI (Reuters) – Asian stocks slid to a monthly low on Friday as price in global fixed income markets skyrocketed and shocked investors on fears the heavy losses suffered led to a distressed sale of other assets could lead.
The scale of the sell-off prompted the Australian central bank to launch a surprise bond-buying operation to stop the bleeding and lift yields there from early highs.
Treasury 10-year bond yields fell from an annual high of 1.614% to 1.494%, but still rose an astonishing 40 basis points in the biggest step since 2016.
"The fixed income router is moving into a more deadly phase for risky assets," said Damien McColough, head of interest rate strategy at Westpac.
"The rise in yields has long been viewed primarily as an improvement in growth expectations, if at all, to replenish risky assets. However, the overnight move specifically involved a sharp rise in real rates and an increase in Fed stimulus expectations."
Markets hedged the risk of an earlier Federal Reserve rate hike despite officials vowing this week that any move in the future would take a long time.
Fed fund futures are now almost entirely priced to rise 0.25% through January 2023, while Eurodollars have discounted them for June 2022.
Even the thought of an end to super cheap money shuddered global stock markets, which regularly hit record highs and stretched valuations.
MSCI's broadest index for stocks in the Asia-Pacific region outside of Japan fell 2.4% to a monthly low, while it lost 2.5%.
Chinese blue chips joined the retreat, down 2.5%.
NASDAQ futures fell 0.5% after falling sharply overnight, while falling 0.1%. EUROSTOXX 50 futures lost 1.2% and futures 1.1%.
Overnight, the Dow had lost 1.75%, while the lost 2.45% and the Nasdaq had lost 3.52%, the biggest drop in nearly four months for the tech-heavy index.
Tech darlings all suffered, with Apple Inc (NASDAQ :), Tesla (NASDAQ 🙂 Inc, Amazon.com Inc (NASDAQ :), NVIDIA Corp (NASDAQ :), and Microsoft Corp. (NASDAQ 🙂 the biggest hauls.
All of this added to the importance of US personal consumption data due later Friday, which includes one of the Fed's favored inflation measures.
Core inflation is expected to decline to 1.4% in January, which could help ease market fears, but any positive surprise would likely accelerate the bond out.
The surge in government bond yields also led to ruin in emerging markets, as fears the better yields in the US could pull funds away.
All of the currencies favored for leveraged carry trades suffered, including the Brazilian real, Turkish lira, and South African rand.
The flows helped further boost the US dollar, rising to 90.360. It also rose against the yen with a low yield and briefly hit its highest level since September at 106.42. The euro fell to $ 1.2152.
The jump in earnings tarnished gold, which does not offer a fixed rate of return, bringing it down by $ 1,815 an ounce from the weekly high to $ 1,767.
ANZ analysts, however, were more optimistic.
"We now expect US inflation to reach 2.5% this year," a note said. "In combination with a further depreciation of the US dollar, we see a fair gold value of 2,000 USD / ounce in the second half of the year."
Oil prices hovered near the 13-month high, with profit-taking capped by a sharp drop in production last week due to the Texas winter storm. (OR)
U.S. crude fell 44 cents to $ 63.08 a barrel and lost 33 cents to $ 66.55.