Asian share markets yesterday slipped after a spike in global bond yields soured sentiment toward richly priced tech stocks, while a stampede out of crowded positions might have put an end to the bull run in crude oil.
Having plunged 7 percent overnight, Brent crude futures managed a feeble bounce of just US$0.11 to US$63.39 a barrel, while US crude added US$0.06 to US$60.06.
The retreat wiped out four weeks of gains in a single session amid worries world demand would fall short of high expectations.
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Markets were also unsettled by the Bank of Japan’s (BOJ) decision to slightly widen the target band for 10-year yields and tweak its buying of assets.
The bank portrayed the changes as a “nimble” way to make easing more sustainable, although investors seemed to take it as a step back from all-out stimulus.
A decision to confine purchases to only TOPIX-linked exchange-traded funds knocked the Nikkei down 1.6 percent, while South Korea lost 1 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan followed with a fall of 1.5 percent.
Chinese blue-chip stocks shed 1.9 percent, perhaps unnerved by a fiery exchange between US and Chinese diplomats at the first in-person talks under the administration of US President Joe Biden.
NASDAQ futures went flat, after a sharp 3 percent drop overnight, while S&P 500 futures added 0.1 percent. European futures followed the overnight fall with the EURO STOXX 50 off 0.8 percent and FTSE futures 0.6 percent.
Investors are still reflecting on the US Federal Reserve’s pledge to keep rates near zero out to 2024, even as it lifted forecasts for economic growth and inflation.
US Federal Reserve Chairman Jerome Powell seems likely to drive home the dovish message next week with no less than three appearances lined up.
“Stronger growth and higher inflation, but no rate hikes is a potent cocktail for risk assets and equity markets,” Nomura economist Andrew Ticehurst said.
“The message for bonds is more mixed: While the anchoring of the short end is a positive, market participants may come to worry that the forecast rise in inflation might not be temporary and that the Fed risks ‘overcooking it,’” he said.
Yields on US 10-year notes spiked to the highest since early last year at 1.754 percent and were last at 1.71 percent. If sustained, this would be the seventh-straight week of increases worth a huge 64 basis points in total.
The drastic bearish steepening of the yield curve reflects the risk the Fed is serious about keeping short-term rates low until inflation accelerates, so requiring longer-term bonds to offer fatter returns to compensate.
A Bank of America Corp survey of investors showed that rising inflation and the bond “taper tantrum” had replaced COVID-19 as their No. 1 risk.
While still bullish on economic growth, company earnings and stocks, respondents feared a sharp setback for equities should 10-year yields cross 2 percent.
The jump in US Treasury yields provided some support to the US dollar, although analysts said that faster US economic growth could also widen the account deficit to levels that would ultimately drag on the currency.
The US dollar index had bounced to 91.853, from a low of 91.3 to leave it slightly firmer for the week.
It steadied on the low-yielding yen at ¥108.91, just off the recent 10-month top of ¥109.36. The euro eased back to US$1.1914, having repeatedly failed to crack resistance at US$1.199 and US$1.20.
The rise in yields has weighed on gold, which offers no fixed return, and left it down 0.2 percent at US$1,731 an ounce.
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