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GLOBAL MARKETS-Asian shares extend global rout, yen perks up on intervention hints

GLOBAL MARKETS-Asian shares extend global rout, yen perks up on intervention hints

Reuters · 09/14/2022 02:19
GLOBAL MARKETS-Asian shares extend global rout, yen perks up on intervention hints

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

Nikkei tumbles 2.3%, S&P 500 futures stabilise

Dollar falls 0.6% on yen on of rate check from BoJ

2-yr U.S. yields scale 15-yr high of 3.8040%

U.S. yield curve remains deeply inverted

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

By Stella Qiu

- Asian stocks tumbled on Wednesday as U.S. data dashed hopes for an immediate peak in inflation, although the dollar paused its relentless run against the yen as Japan gave its strongest signal yet it was unhappy with the currency's sharp declines.

Data on Tuesday showed the headline U.S. 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.

The stock rout is set to hit European markets, with the pan-region Euro Stoxx 50 futures STXEc1, German DAX futures FDXc1 and FTSE futures FFIc1 off more than 0.7%.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 2.2% on Wednesday, dragged lower by a 2.4% plunge in resources-heavy Australia .AXJO, a 2.5% drop in Hong Kong's Hang Seng index .HSI and a 1.5% fall in Chinese bluechips .CSI300.

Japan's Nikkei .N225 tumbled 2.6%.

After a heavy equity selloff overnight, both the S&P 500 futures ESc1 and Nasdaq futures NQc1 rose 0.2%.

"Markets have reacted violently to what I would consider to be a modest miss in U.S. CPI," 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 Fed's policy meeting week, with a 38% probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME's FedWatch tool.

A day earlier, the probability of a 100 bps hike was zero.

"USD rates are pricing in a Fed funds rate of 4.25% by end-2022 (75bps, 75bps, 25bps for the remaining three meetings). Decent odds of a 4.5% peak early 2023 is also reflected," said Eugene Leow, senior rates strategist at Deutsche Bank.

"While resilient growth and slowing inflation can make for a better risk taking environment, the U.S. economy looks too hot still. With clear signs of the labour market slowing and inflation still problematic, a downshift from the Fed looks set to be delayed again."

The strength of the U.S. dollar had pressured the rate sensitive Japanese yen close to its 24-year low at 149.96 yen before giving up some of the gains on that the Bank of Japan has conducted a rate check in apparent preparation for currency intervention.

Yen-buying intervention is rare. The last time Japan intervened to support its currency was in 1998, when the Asian financial crisis triggered a yen sell-off and rapid capital outflows.

Earlier in the day, Japanese Finance Minister Shunichi Suzuki said that currency intervention was among options the government would consider.

The dollar hovered at 143.7 yen JPY=EBS, down 0.6% for the day.

Many traders remained doubtful that intervention was imminent, but the jump in the yen pointed to rising . The timing of the BOJ's move also suggests that 145 per dollar will be an important level for markets and the authorities.

The two-year U.S. Treasury yield US2YT=RR scaled a 15-year high of 3.8040% on Friday before retreating to 3.7629%, and its curve gap with the benchmark 10-year yields US10YT=RR widened to around 34 basis points, compared with just 16 basis points a week ago.

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

The 10-year Treasury yield held steady at 3.4178%.

Oil prices edged lower on Friday. U.S. crude CLc1 settled down 0.6% at $86.82 per barrel and Brent LCOc1 eased by a similar margin at $92.65. O/R

Gold was slightly higher. Spot gold XAU= was traded at $1703.02 per ounce. GOL/



(Reporting by Stella Qiu; Editing by Stephen Coates, Ana Nicolaci da Costa and Sam Holmes)

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

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