Image: Reuters Berita 24 English - On Friday, world stocks were on track for their worst week since the global crisis in March 2020, as in...
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| Image: Reuters |
Berita 24 English - On Friday, world stocks were on track for their worst week since the global crisis in March 2020, as investors worried that fast rate hikes would tip economies into recession, while growth uncertainties and a surging Swiss franc hammered the dollar.
The Swiss National Bank's surprise 50-basis-point rate hike overnight propelled the franc to its highest level in seven years, forcing carry trades to unwind and rekindling fears that increasing global rates could suffocate growth.
It's also left the Bank of Japan completely alone in its low-rate policy, raising fears that policymakers would change or quit it later on Friday.
This risk had given the yen some support this week, but it was falling against the dollar in morning trade, falling over 1% to 133.27 per dollar. [FRX/]
MSCI's broadest index of Asia-Pacific stocks outside of Japan sank to a five-week low, led down by selling in Australia, where the ASX 200 slid 2% and was on track for a 7% weekly drop. The Nikkei 225 index in Japan plummeted 2.4 percent, while shares in China, where rate hikes are unlikely, rose somewhat.
The Nasdaq plunged 4% overnight, while the S&P 500 dropped 3.3 percent. So far this week, global markets are down 5.7 percent, the largest weekly percentage decrease in more than two years.
The Bank of England also announced a 25-basis-point rate hike overnight, which was smaller than expected and merely added fuel to speculation that even higher raises are on the way.
"Global money is becoming more expensive, and it still has a long way to go," said Rob Carnell, Asia economist at ING.
During Asia hours, all eyes will be on the BOJ, which is expected to make a decision between 0230 and 0400 GMT.
Speculators have piled into short futures and cash bonds in Japan's normally quiet bond market in recent days, betting that the BOJ will capitulate.
On Friday morning, ten-year Japanese government bonds traded barely above the BOJ's de facto 0.25 percent yield objective. [JP/]
While no change is expected, Deutsche Bank strategist Alan Ruskin expects markets to retaliate aggressively if policy changes are made. "Expect a 50-bps drop in JGB 10-year yield...USD/JPY initially down by five digits (and) Nikkei -5 percent," he warned.
ONLY ONE WAY
Bonds experienced a turbulent overnight session, with German debt crashing after the Swiss rate hike and a European Central Bank proposal to direct its bond buying toward peripheral countries, before growth uncertainties reduced the worst losses.
The two-year German bund yield jumped 8.5 basis points to 1.152 percent, while the 10-year bund yield rose 5 basis points to 1.703 percent. [GVD/EUR]
On Thursday, the dollar fell and Treasuries rose as a result of weak labour and housing statistics in the United States, which followed poor retail sales results.
Benchmark 10-year Treasury rates dipped roughly 10 basis points overnight, but swung back up to 3.2461 percent this morning in Asia. When prices fall, yields climb. [US/]
Sterling gained 1.4 percent against the dollar overnight, indicating that more aggressive Bank of England rate hikes are on the way. In Asia, the euro gained 1% and was trading at $1.0535.
"One market phenomenon appears to be a reaction to the fact that if a central bank does not move forcefully, yields and risk price in further rate hikes down the road," said John Briggs, a strategist at NatWest Markets.
"Alternatively, markets could simply be reacting to the prospect of increased global policy rates, given global central bank policy momentum is all one direction."
Another drag on the dollar was the rise of the Swiss franc, which is used as a funding currency and is frequently exchanged for dollars before being swapped for high yielders, meaning dollars are sold when the trade reverses.
Fears about the economy led to a temporary drop in oil prices overnight, but prices have since stabilised. Brent crude futures were trading at $118.96 a barrel at the time of writing. Gold remained stable at $1,846 per ounce, while bitcoin remained under pressure at $20,700.
