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Asian shares slide after Wall Street frets over rate hike consequences -Breaking


© Reuters. FILEPHOTO: A Beijing-based brokerage in China displays stock information to an investor. This was December 7, 2018. REUTERS/Thomas Peter

By Alun John

HONG KONG, (Reuters) – Asian shares fell on Friday as the U.S. dollar rose and Treasury yields surged in a reversal from a day earlier. This was after concerns among investors that higher interest rates might hurt global economic growth.

Markets fear that the U.S. Federal Reserve (and other central banks) will raise interest rates more aggressively to fight red-hot inflation. This could potentially push economies into recession.

The market will be able to gauge the economic heat by looking at the U.S. payroll data, which is due Friday.

The MSCI Asia-Pacific broadest index, which is not a measure of shares in Asia-Pacific outside Japan, lost 2.34% Friday morning. It was down 3.5% since Friday’s close. It was flat upon its return after a three day holiday.

Wall Street saw the and the fell by over 3% overnight, while the lost 4.99% in the biggest one-day plunge since June 2020. The closes at its lowest level since November 2021.

This was a reversal of the situation 24 hours earlier when Asian shares opened higher after the S&P 500 had recorded its biggest one-day percentage gain in nearly two years on Wednesday.

Rob Carnell from ING Asia, the head of research on the region said about the quick U-turn as part of a note to clients.

Markets are pricing in an 82% chance that the Fed will raise rates 75 basis points at its June meeting, according to CME’s FedWatch tool. That’s despite Powell having ruled out a 75 percent rate increase and the Fed increasing rates 50 basis points each week.

“Risks remain elevated for a policy mistake – either by (the Fed) not tightening quickly enough to combat inflation or being overly hawkish, resulting in the end of the current business cycle,” said David Chao, global market strategist, APAC ex-Japan, at Invesco.

Chao stated that U.S. and Asia Pacific equity could experience some volatility, and U.S. yields may continue rising. However, he believes momentum from post-Omicron opening would support U.S. economic growth in spite of Fed policy normalization.

U.S. yields have been rising in anticipation of rapid rate increases. On Friday, U.S. 10-year note yields rose to 3.084% after the overnight crossing of 3.1% for the first time since November 2018.

The firm pledge by Chinese leaders that they will maintain a zero-COVID policy raised concerns about China’s economic health. However, sentiment is being hurt by the conflict in Ukraine.

Chinese blue chip prices fell 2% and Hong Kong benchmark lost 2.44% on Friday.

The price of offshore traded currencies fell to 6.7338 USD in 18 months.

The market moved away from riskier assets on Friday, hitting 103.67 by morning. This was after it had reached a 20 year high of 103.94 overnight. Supported by expectation that the U.S. will raise interest rates quicker than other central banks, this new peak came as investors shifted to safer investments.

On Thursday, Sterling fell by 2.2% against the US dollar. As expected, the Bank of England raised rates 25 basis point as per its expectation. However, two policymakers expressed concern about overreaching in future rate increases.

One of the most risk-friendly assets fell 8% overnight, hitting a low of two and a half months. Last trading was at $36,300.

As concerns about an economic recession outweighed worries over new E.U., oil prices fell at the beginning of Asian trade. There were sanctions against Russia that included a crude oil embargo.

Futures dropped 0.5%, to $110.3/barrel. The barrel lost 0.56 percent to $107.67

The gold price fell 0.3% to $1870.7 per ounce.