Asia stocks slide toward weekly loss as central banks plough on with rate hikes
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By Tom Westbrook
SINGAPORE (Reuters) – Asian stocks fell for the second straight day on Friday, heading for their worst week in two months after a number of central banks hiked interest rates and warned more rate hikes are likely next year.
Interest rates rose in Europe, the UK, Switzerland, Denmark, Norway, Mexico and Taiwan on Thursday after a US interest rate hike on Wednesday and promises by central bankers to keep raising rates until inflation is curbed, prompted markets over a potential recession.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.65% and shed 2.1% for the week.
Japan’s Nikkei fell 1.5%.
Overnight, Wall Street’s S&P 500 had its biggest percentage drop in more than a month, falling 2.5%.
Longer dated bonds were firm and the US dollar rallied. [US/][FRX/]
“Central banks are still hawkish and still looking to hike rates,” said Alvin Tan, Asia currency strategist at RBC Capital Markets in Singapore.
“So there is a tension between central banks being more hawkish than the market anticipated, and that dichotomy has been emphasized by both the Fed and the European Central Bank over the past 48 hours.”
On Thursday, the European Central Bank followed the Fed with a 50 basis point hike, both opting for a smaller hike than before, but hinting that more hikes are ahead than investors had anticipated.
ECB President Christine Lagarde said the latest information is forecasting “a further 50 basis point rise at our next meeting and possibly the one after that and possibly after”, prompting traders to raise interest rate expectations in Europe.
“This is not a fulcrum,” she said of the slower rate hike. “We’re not slowing down, we’re prepared for the long game.”
European bond yields soared, with two-year German yields jumping 24.2 basis points, the biggest one-day rise since the 2008 financial crisis. [GVD/EUR]
The Bank of England also announced a 50 basis point hike and forecast more. Even Norges Bank, which began raising rates in September last year and has since hiked rates by 275 basis points, hiked 25 basis points on Thursday and said it was ongoing.
ANXIETY OF GROWING
In China, with markets reeling from an uncertain reopening, relief at the apparent settlement of a long-standing dispute over access to accounting rules with the United States wasn’t enough to spur a rally, and the Hang Seng fell 1%. [.HK][.SS]
The prospect of higher interest rates in the near term is also making investors nervous about longer-term growth as there are increasing signs that a global slowdown is gaining momentum.
Japan’s manufacturing activity contracted in December at its fastest pace in more than two years, a business survey showed on Friday. US retail sales fell more-than-expected in November as some of the consumption momentum drains away from the economy.
Ten-year government bonds recovered a bit, with the yield falling five basis points before stabilizing at 2.4736% in Asia. Bigger moves came in currencies, where the dollar halted its recent slide with its sharpest gain in two months.
The dollar index rose 0.9%. The dollar rose 1.7% and broke its 200-day moving average against the yen, where it was last seen largely stable at 137.37 yen. The Australian dollar had its worst session in two years, falling 2.4%.
“This time it wasn’t US bond yields that drove the move, just a sense that it might be difficult to buy risky assets if Fed policy remains tight for longer,” strategists at ANZ Bank said in a market note.
“The Fed may not be rising as fast, but it still has the highest interest rate in the G10 and will be one of the few central banks to hike interest rates above 5%.”
Gold fell against the rising dollar, falling 1.7% to $1,777 an ounce in Asia. Oil gave back some gains recently, with Brent crude futures down 1.8% overnight to stand steady at $81.33 a barrel on Friday.
(Editing by Simon Cameron-Moore)