Asian stocks extend their global defeat, yen rises after hints of intervention

An electronic stock price board is displayed inside a conference hall in Tokyo, Japan on November 1, 2021. REUTERS/Issei Kato

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  • Nikkei down 2.3%, S&P 500 futures flat
  • The dollar fell 0.6% against the yen on news of an interest rate check from the Bank of Japan
  • The 2-year US yield gauge is a new 15-year high at 3.8040%.
  • The yield curve in the US remains deeply inverted

SYDNEY (Reuters) – Asian stocks fell on Wednesday as US data dashed hopes of an immediate peak in inflation, although the dollar halted its strong rally against the Japanese yen as Japan gave its strongest signal but was unhappy with sharp declines in the currency. .

Data on Tuesday showed that the core US consumer price index rose 0.1% month over month, versus expectations for a 0.1% decline. In particular, core inflation, which excluded volatile food and energy prices, doubled to 0.6%. Read more

Wall Street saw its biggest drop in two years, the safe-haven dollar posted its biggest jump since early 2020, and two-year Treasury yields, which rose as traders expected Fed funds rates to rise, jumped to a 15-year high. .

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The trajectory of stocks is set to hit European markets, with region-wide Euro Stoxx 50 futures, German DAX futures and FTSE futures down more than 0.7%.

In Asia, MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It fell 2.2% on Wednesday, dragged down by a 2.4% drop in resource-rich Australia (.AXJO)a 2.5% drop in Hong Kong’s Hang Seng Index (.HSI) And 1.5% drop in Chinese charts (.CSI300).

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Japan’s Nikkei Index (.N225) It decreased by 2.6%.

After a massive sell-off in stocks overnight, both the S&P 500 and Nasdaq futures contracts rose 0.2%.

“Markets have reacted violently to what I consider to be a modest failure in the US CPI,” said Scott Rundell, chief investment officer at Mutual Limited.

“Futures are stable, so we may see a dead cat bounce tonight.”

Financial markets have now priced the entire rate hike at at least 75 basis points at the conclusion of next week’s Fed policy meeting, with a 38% probability of a sizeable increase and a full percentage point of the revised Fed funds target, according to CME’s FedWatch Tool.

A day earlier, the probability of a 100 basis point rise was zero.

“US dollar rates are now priced at the fed funds rate at 4.25% by the end of 2022 (75 basis points, 75 basis points, 25 basis points for the remaining three meetings),” said Eugene Liu, chief executive officer, rate strategist at Deutsche Bank.

“While resilient growth and slowing inflation could lead to a better risk environment, the US economy is now looking very hot. With no visible signs of a slowing labor market and inflation still being an issue, it looks like a downward turn from the Fed will be delayed once again .”

The strength of the US dollar pressured the interest rate-sensitive Japanese yen near a 24-year low of 149.96 yen before giving up some gains on news that the Bank of Japan conducted an interest rate check in clear readiness for currency intervention. Read more

It is rare to get involved in buying the yen. The last time Japan intervened to prop up its currency was in 1998, when the Asian financial crisis caused a sell-off of the yen and rapid capital inflows.

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Earlier today, Japanese Finance Minister Shunichi Suzuki said currency intervention was among the options the government would consider. Read more

The dollar is now hovering at 143.7 yen, down 0.6% for the day.

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

The two-year US Treasury yield surged to a new 15-year high of 3.8040% on Friday before easing back to 3.7629%, and the curve gap with benchmark 10-year bond yields widened to about 34 basis points, compared to just 16 basis points. Since a week.

A yield curve inversion is usually treated as a recession warning.

The yield on the 10-year Treasury bond settled at 3.4178%.

Oil prices fell on Friday. The price of US crude fell 0.6 percent to $ 86.82 a barrel, and Brent crude fell by a similar margin at $ 92.65.

Gold was a little higher. Spot gold was trading at $1,703.02 an ounce.

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Reported by Stella Keogh; Editing by Stephen Coates and Anna Nicholas Da Costa and Sam Holmes

Our criteria: Thomson Reuters Trust Principles.

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