Asian stocks fall on Fed stance

by Jonathan Adams
MSCI

Nikkei declined 3.3 per cent, while MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1 per cent, Chinese blue chips opened 0.4 per cent lower, and Australia’s benchmark slipped 1.8 per cent

Stock in Asia fell after a surprise hawkish shift last week by the US Federal Reserve, with the Treasury yield curve flattening further and 30-year yields dropping below two per cent.

Japan’s Nikkei declined 3.3 per cent, dropping below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1 per cent in early trading.

Chinese blue chips opened 0.4 per cent lower, and Australia’s benchmark slipped 1.8 per cent.

Benchmark 10-year US Treasury yields hit their lowest since early March at 1.4110 per cent, while those on 30-year bonds dropped 1.9990 per cent for the first time in more than four months. The yield curve was the flattest since early February.

The US dollar was near the 10-week high reached on Friday compared to major peers after its biggest weekly advance in more than a year.

The story of last week was arguably the one-way move in the USD, which morphed into a clear de-grossing through equity markets, with the ‘value’ parts of the market really getting clobbered, Chris Weston, the head of research at Pepperstone Markets Ltd, a foreign exchange broker based in Melbourne, wrote in a client note.

It feels that the pain trade is for further strength in the USD, higher real rates, and a flatter Treasury curve, with the market continuing to see the reflation trades unwound, he said.

Shares of banks, energy firms and other companies that tend to be sensitive to the economy’s fluctuations have dropped sharply after the Fed’s meeting on Wednesday as the central bank anticipated two quarter-percentage-point rate increases in 2023 amid a recent surge in inflation.

St. Louis Fed President James Bullard further fuelled the sell-off on Friday, saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than expected as the country reopens from the coronavirus pandemic.

In more Fed new, Chairman Jerome Powell will testify before Congress on Tuesday.

The MSCI world equity index dropped another 0.2 per cent on Monday, extending its retreat from a record intraday high reached on Tuesday.

US stock futures indicated further selling as Wall Street reopens, easing 0.2 per cent after Friday’s 1.3 per cent decline in the S&P 500.



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