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GLOBAL MARKETS-Asian shares extend global selloff amid bets on more aggressive Fed

GLOBAL MARKETS-Asian shares extend global selloff amid bets on more aggressive Fed

Reuters · 09/13/2022 21:01
GLOBAL MARKETS-Asian shares extend global selloff amid bets on more aggressive Fed

Asian stock markets : https://tmsnrt.rs/2zpUAr4

Nikkei tumbles 2.7%, S&P 500 futures stabilise

Dollar holds firm, looks to test 24-yr high against yen

2-yr U.S. yields scale 15-yr high

U.S. yield curve remained deeply inverted

Fed funds futures fully priced in at least 75 bps hike week

By Stella Qiu

- Asian shares tumbled, the dollar held firm and the U.S. yield curve was deeply inverted on Wednesday, as a white-hot U.S. inflation report dashed hopes for a peak in inflation and fuelled bets that interest rates may have to be raised higher and for longer.

U.S. Labor Department data showed on Tuesday the headline Consumer Price Index gained 0.1% on a monthly basis versus expectations for a 0.1% decline. In particular, core inflation, stripping out volatile food and energy prices, doubled to 0.6%.

Wall Street saw its steepest fall in two years, the safe-haven dollar posted its biggest jump since early 2020, and two-year Treasury yields, which rise with traders' expectations of higher Fed fund rates, jumped to the highest level in 15 years.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.3% in early Asia trade on Wednesday. Resources-heavy Australia .AXJO plunged 2.8%, while Japan's Nikkei .N225 tumbled 2.7%.

Both S&P 500 futures ESc1 and Nasdaq futures NQc1 rose 0.1%, after a heavy sell-off. The Dow Jones Industrial Average .DJI plunged 3.94%, the S&P 500 .SPX lost 4.2%, and the Nasdaq Composite .IXIC dropped 5.16%.

"Markets have reacted violently to what I would consider to be a modest miss in U.S. CPI. Stocks and bonds were smoked, taken to the principal's office for a good old-fashioned, old-school pre-woke thrashing," said Scott Rundell, chief investment officer at Mutual Limited.

"Futures have stabilised, so we might see a dead-cat bounce tonight."

Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC's policy meeting week, with a 33% probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME's FedWatch tool.

"With another 75bp hike more than fully priced into the market following the CPI report, there is reason for the Fed to deliver another super-sized move," said Kevin Cummins, chief U.S. Economist at NatWest Markets.

"We expect the FOMC to follow up July's large 75bps rate increase with a similar 75bps move in November (up from our earlier 25bps call) and another 50bps in December to 4.25-4.50% (up from our earlier 25bps call)."

In the currency markets, the U.S. dollar =USD held firm against a basket of major currencies at 109.9, after jumping 1.4% overnight on the surprisingly strong U.S. inflation report.

It hovered close to its 24-year peak against the rate-sensitive Japanese yen JPY= at 144.57 yen. The yen has been a victim of the dovish monetary stance from the Bank of Japan, in contrast with rate hikes elsewhere.

The two-year U.S. Treasury yield US2YT=RR scaled a 15-year high of 3.8040% on Friday, as the curve gap with the benchmark ten-year yields US10YT=RR hovering around 34 basis points, compared with 16 bps a week ago.

The yield curve inversion is usually treated as a warning of recession.

The yield on 10-year Treasury rose to 3.4448% compared with its U.S. close of 3.423% on Tuesday.

Oil prices recovered some ground on Friday, after falling in the previous session. U.S. crude CLc1 settled up 0.4% at $87.63 per barrel and Brent LCOc1 settled at $93.44, up 0.3% on the day.

Gold was slightly higher. Spot gold XAU= was traded at $1701.7526 per ounce. GOL/

(Reporting by Stella Qiu; Editing by Stephen Coates)

((yifan.qiu@thomsonreuters.com; +61 0427901124))

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