Asia stocks extend slump, bonds lead losses as rate hikes hit

SYDNEY – Asian stocks limped towards a fourth straight weekly decline on Friday and bonds nursed big losses as investors scrambled to catch up with the US Federal Reserve’s interest rate outlook, while currency markets were on edge at the end of a wild week.

Fed members’ projections for aggressive hikes and persistently high rates over the next year or so have unleashed another round of US dollar buying that puts other assets on the run.

World stocks hit two-year lows on Thursday and are down 3 per cent this week. The euro and yen fell to 20-year lows and, on Thursday, the Japanese authorities stepped into the market for the first time since 1998 to buy yen and arrest its slide.

The resultant spike has the yen up to 142.20 per US dollar and on course for its best week in more than a month, and has, for now, tapped the brakes on broader dollar gains.

The Singapore dollar, which weakened to a 29-month low against the United States dollar on Thursday, was trading at 1.4195 to the greenback at 10.30am local time, dipping 0.06 per cent from the previous day.

In regional markets, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5 per cent to a two-year low. It is down 3 per cent this week. Japan’s Nikkei was closed for a public holiday.

Singapore’s Straits Times Index was down 0.78 per cent.

South Korea’s Kospi index lost 1.12 per cent, while Australia’s S&P/ASX 200 Index fell 1.61 per cent. The Sydney market was closed on Thursday.

Hong Kong’s Hang Seng Index dipped 0.1 per cent, while the Shanghai Composite Index inched up 0.1 per cent.

S&P 500 futures drifted 0.1 per cent higher and European futures rose 0.4 per cent early in the Asia session.

Overnight, Wall Street indexes fell and longer-dated US Treasuries were dumped – sending the 10-year yield up about 20 basis points to 3.71 per cent – as traders tried to adjust to the prospect of US interest rates above 4 per cent for some time.

“The 10-year was playing catch-up to the newly calibrated cash rate,” said Mr Damien McColough, Westpac’s head of rates strategy in Sydney.

“If you believe the front end is going to peak at 4.6 per cent, can you really sustain 10-year bond yields at 3.7 per cent?” he said.

“It is very skittish price action… I think that this volatility continues in all markets in the near term (until) the rates market settles.”