MSCI’s broadest index of Asia-Pacific stocks outside of Japan was flat in morning trade and down around 1.5% for the week so far. The Japanese Nikkei fell 0.2% on Friday and is heading for a weekly loss of almost 3%.
A late rally allowed the Wall Exchange indices to recover slightly, but they are also all down for the week, with the rate-sensitive Nasdaq down 2.5%. US futures contracts remained stable.
Federal Reserve policymakers are ready to start cutting central bank holdings from May and are ready to raise rates by 50 basis points at a time to curb inflation, according to meeting minutes and reports. remarks from officials this week.
The war in Ukraine and the shock wave it caused on commodity prices, as well as the continuing damage caused to supply chains by the pandemic, have increased pressure on consumer prices and added to the feeling of despair. a major change in trend.
“Combine these elements…and the equity risk premium in any market must rise,” said Lirong Xu, chief investment officer at Franklin Templeton Sealand Fund Management Shanghai. “And interest rates will not be able to fall any further.”
“The past two decades have brought low inflation and a relatively peaceful world. Going forward, geopolitical conflicts may become increasingly volatile and have a greater impact on the broader global economy.”
The risk of a populist upset in France’s presidential elections also sent shivers down the spine – dragging down French debt and the euro – ahead of Sunday’s first round of voting.
A victory by far-right leader Marine Le Pen over incumbent President Emmanuel Macron, while still unlikely, is now within the margin of error, according to opinion polls, and the euro edged down a 1-month low of $1.0858 in morning trading.
Elsewhere, long-dated Treasuries were the hardest hit by this week’s sell-off in haemorrhaging bond markets, as traders believed they were the hardest hit by the Fed’s reduction in bond holdings.
The benchmark 10-year Treasury yield is up 25 basis points (bps) to 2.6409% this week, and was flat in Asian trading on Friday. The 30-year yield is up 22 basis points.
The US dollar was the main beneficiary and the Dollar Index, which measures the greenback against a basket of six major currencies, hit a nearly two-year high of 99.904 on Friday.
The strengthening dollar, and easing oil prices with the release of reserves, also pushed commodity currencies off their recent highs and redoubled pressure on the struggling yen. The Japanese currency is near its lowest levels in years and was under pressure at 124.23 per dollar.
Brent crude oil futures were flat at $100.56 a barrel and US crude oil futures held steady at $96.17. [O/R]
There were also some bright spots, with the Australian stock market, heavily active in banking and mining, holding steady for a week, and European and FTSE futures posting gains of around 0. .8% on Friday.
“A higher rate environment that transpires through the hike cycle will continue to benefit value stocks over growth stocks and offers a more constructive outlook for sectors like financials,” said Clara Cheong, a Singapore-based strategist at JP Morgan Asset Management.