Stella Qiu, Tom Westbrook

BEIJING, (Reuters) – Asian shares fell on Friday as investors worried about an aggressive rate hike outlook in the United States and the potential impact of lockdowns by China on the global economy.

MSCI’s Asia-Pacific broadest index fell 0.7% to touch a 5-week low. This was due to a 1.6% decline in Australia’s resource-heavy index, and 0.8% decreases in South Korean shares.

It fell 1.6%

EuroSTOXX 50 and EuroSTOXX 50 are also weakening, with futures falling 1.6% and 1.2% respectively. are at 0.1%.

Chinese stocks showed a recovery after volatile trade. Bluechips on the mainland gained 1%, reversing earlier losses and gaining 1% on the hope for support. But the currency continues to be under pressure because of Shanghai’s lockdowns.

The seven-month low of the yuan was reached and it is now on track for its worst week in 2019

Analysts from HSBC believe that China will offer a complete easing package, on both fiscal and monetary fronts. This includes loosening of restrictions in China’s property sector which was hard hit by credit access restrictions.

Jingyang Chen (a currency analyst at HSBC Hong Kong), said that “the next focus will be on the China PMI data next Week.” A negative surprise could push the yuan even lower.

“High-frequency data from April suggests severe disruptions in supply chains caused by virus containment measures implemented in the Yangtze River Delta Region, where almost 25% of China’s GDP is located.”

The progress made in the resolution of audit problems that had raised doubts about U.S. listing of Chinese companies in Hong Kong supported tech shares, however rates concerns kept other asset classes at risk.

U.S. RATE HIKES

Jerome Powell, Chairman of the U.S. Federal Reserve, stated that a half point interest rate hike will be on the Fed’s May agenda. He also said it was appropriate to “move a bit faster.”

His remarks effectively confirmed market expectations of at least another half-percentage-point rate hike from the Fed next month, and Nomura now expects 75 basis point hikes at its June and July meetings, which would be the biggest of that size since 1994.

Tendency to sell in the bond market drove five-year U.S. Treasury yields up to 3.04% (the highest since late 2018), and two-year yields up to 2.7620%. [US/]

The comments of European Central Bank officials suggesting that central banks might raise eurozone rates by July were still causing market shock. The German yields on two-year bonds hit an eight-year peak Thursday.

Currency markets saw the yen stabilize on talks of joint Japan-U.S. FX Intervention, while the euro lost Thursday’s momentum as nerves over Sunday’s French presidential elections creep in.

Last week, the yen traded at 127.82 dollars per dollar while the euro was at $1.0848. Dollar gains drove New Zealand’s and Australia’s dollars to new multi-week lows. [FRX/]

On Friday, oil prices dropped due to the possibility of higher interest rates, weaker growth, and COVID-19 lockdowns by China, which could lead to lower demand.

Futures fell 1.2% to $107.03 per barrel. U.S. West Texas Intermediate crude futures dropped $1.27 or 1.2% to $102.52.

It has been weighed down by U.S. rate rises. Last time, it was down by 0.02% at $1,951.32 an ounce. The Wall Street Indexes were down on Thursday with the Nasdaq dropping 2% and the Nasdaq falling 1.5%.