ASIAN TRADING FLOORS were a sea of red once again today as the global rout returned with a vengeance on intensifying fears about tighter US interest rates.
Tokyo, Hong Kong and Shanghai were among the worst hit as they plunged between three and four percent, while investors piled into safe haven assets such as gold and the yen.
The sell-off followed another battering for Wall Street, where the Dow suffered its second-heaviest daily points fall on record – the worst coming on Monday – after key US Treasury bond yields spiked fuelling the prospect of higher borrowing costs.
US markets are now in a correction, which is a 10% drop from recent highs.
After a blistering 2017 and January, markets worldwide have gone into a spasm in the past two weeks on fears that the booming global economy and rising inflation will lead to higher interest rates.
“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” Doug Cote, chief market strategist at Voya Investment Management, told Bloomberg News. “They could be in full panic mode right now.”
Japan’s Nikkei is now at levels not seen since mid-October, Hong Kong is on course to wipe out its 2018 gains and Shanghai is around a seven-month trough.
Elsewhere Sydney fell one percent, Singapore shed 1.6% and Seoul was 1.8% off. Wellington, Manila and Taipei were also being battered.
Pound, euro rally
A key trigger of the recent pullback was last Friday’s strong US jobs report that also showed rising US wage growth, fuelling speculation the Federal Reserve will lift rates more than the three times already expected this year.
At the same time, the European Central Bank is on the verge of ending its crisis-era stimulus, while the Bank of England warned yesterday that rates will likely rise.
“The message from ECB and Fed speakers, not to mention the Bank of England is that rates will continue to climb because of the strength of the global economy,” said Greg McKenna, chief market strategist at AxiTrader.
With eurozone and British borrowing rates expected to go up, the euro and pound climbed against the dollar.
The greenback was also sharply down against the yen from yesterday’s levels in Asia as panicked investors sought out safety. The dollar fell to as low as 108.50 yen from almost 110 yen earlier, hit by a weak sale of US bonds, which jacked their yield back close to four-year highs.
However, many analysts are upbeat about the future owing to healthy economic conditions in the US and global economies as well as the positive outlook for corporate earnings after Donald Trump’s massive tax cuts in December.
Energy firms around Asia are again taking a beating, with plunging oil prices adding to their woes.
Data showing surging US production has sent crude spiralling downward, with both main contracts about 10% off their January highs, and offsetting a cap deal between OPEC and Russia.
Sukrit Vijayakar of Trifecta Consultants said the record high US output figure “suggests that it is now possible to ramp up production even higher quite soon” which would be negative for a market trying to soak up excess supplies to balance them with demand.
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