Economic news

Asian Shares Fall, U.S. Treasury Yields Hold Firm

  • China, HK stocks reverse gains; Nikkei closed
  • U.S., European stock futures down; dollar firmer
  • Oil prices and gold slide

HONG KONG, Feb 11 (Reuters) - Asian share markets fell on Friday, after red-hot U.S. inflation data and hawkish comments from a Federal Reserve official fuelled bets on U.S. interest rates being hiked more aggressively, and sent U.S. Treasury yields jumping.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 1.1%, with most markets in the red. Greater China markets, which had been buoyed by strong credit growth data and a resurgence in property stocks, gave up earlier gains. Japanese markets were closed for a holiday.

An index tracking Hong Kong listed mainland property firms rose 1.7% after a media report that China will allow real estate firms easier access to presale proceeds from residential projects, loosening a liquidity squeeze on the sector. 

Broader moves across Asian stocks followed U.S. data on Thursday which showed consumer prices surged 7.5% last month on a year-over-year basis, topping economists' estimates of 7.3% and marking the biggest annual increase in inflation in 40 years.

Sentiment further soured after St. Louis Federal Reserve Bank President James Bullard said the data had made him "dramatically" more hawkish. Bullard, a voting member of the Fed's rate-setting committee this year, said he now wanted a full percentage point of interest rate hikes by July 1.

Though Bullard is one of the more hawkish Fed policymakers, contracts traded at CME Group priced in an 88% chance of a 50 basis point hike in March and a nearly 95% chance of at least 100 basis points by June, up sharply from before the data.

The stock rout is set to continue in Europe. The pan-region Euro Stoxx 50 futures tumbled 1.54%, and FTSE futures were down 1.04%.

Wall Street futures also took a beating. S&P 500 futures fell 0.8% and Nasdaq futures were 1.03% lower. On Thursday, the Dow Jones Industrial Average fell 1.47%, the S&P 500 lost 1.81% and the Nasdaq Composite dropped 2.1%.

"Our view is that Asian shares were not as relatively overvalued as U.S. equities so there should be some selective resilience," said Lorraine Tan, Morningstar's Director of Equity Research in Asia, while adding that the market was still digesting a higher cost of capital than it had been used to.

"Having said this, we think the market has factored in a rise in 10-year treasuries to 2.0-2.5%. The risk and the fear that will lead to a sharper sell off is if yields move above this level."

The yield on benchmark 10-year U.S. Treasury yield hit 2% for the first time since August 2019, and was last at 2.0346%.

Two-year notes, which typically move in step with interest rate expectations, were yielding 1.5868% having jumped sharply after the CPI data.

"That reaction is quite significant when you consider traders were supposedly expecting a 50-year high read on CPI," said Matt Simpson, Senior Market Analyst, City Index.

"But with inflation adding a full 2.1 percentage points over the past four months alone, it's a good job the Fed has ditched the term transitory," Simpson said, noting the U.S. central bank was no longer describing the rise in inflation as a temporary phase.

That jump drove significant volatility in currency markets on Thursday, sending the dollar to a five week high against the yen .

The dollar rose in Asia on Friday, gaining 0.16% against a basket of major currencies. The euro was last down 0.4% at $1.1382 and the Australian and New Zealand dollars each dropped more than 0.5%.

The higher dollar weighed on oil prices. U.S. crude dipped 0.41% to $89.51 a barrel, while Brent crude fell 0.58% to $90.95 per barrel. Investors are awaiting the outcome of U.S.-Iran talks that could lead to increased global crude supply.

Spot gold was down 0.15% at $1823.5 per ounce.

Reporting by Stella Qiu in Beijing and Alun John in Hong Kong; Editing by Simon Cameron-Moore

Source: Reuters

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