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Asia: Markets hammered after US stocks rout
[SYDNEY] Asian share markets sank on Thursday after Wall Street suffered its worst drubbing in eight months, a conflagration of wealth that could threaten business confidence and investment across the globe.
It also raised the stakes for United States inflation figures due later on Thursday, as a high outcome would only stoke speculation of more aggressive rate hikes from the Federal Reserve.
"Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF (International Monetary Fund) about financial stability risks and continued trade tension all driving uncertainty," summed up analysts at ANZ.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.9 per cent to its lowest in 17 months.
Japan's Nikkei sank 3.2 per cent in early trading, which would be the biggest daily drop since March.
On Wall Street, the S&P 500 index suffered its biggest one-day fall since February as technology shares tumbled on fears of slowing demand. The S&P technology sector dropped 4.8 per cent, with Apple Inc down 4.6 per cent.
The S&P 500 ended Wednesday with a loss of 3.29 per cent and the Nasdaq Composite 4.08 per cent, while the Dow shed 2.2 per cent.
The blood letting was bad enough to attract the attention of US President Donald Trump, who pointed an accusing finger at the Fed for raising interest rates.
"I really disagree with what the Fed is doing," Mr Trump told reporters before a political rally in Pennsylvania. "I think the Fed has gone crazy."
It was hawkish commentary from Fed policymakers that triggered the sudden sell off in Treasuries last week and sent long-term yields to their highest in seven years.
The surge made stocks look less attractive compared to bonds while also threatening to curb economic activity and profits.
YUAN A FLASHPOINT
The shift higher in yields also threatens to suck funds out of emerging markets, putting particular pressure on the Chinese yuan as Beijing fights a protracted trade battle with the US.
China's central bank has been guiding its yuan steadily weaker, breaking past the psychological 6.9000 barrier and leading speculators to push the dollar up to 6.9234.
That has forced other emerging market currencies to weaken to stay competitive, and drawn the ire of the US, which sees it as an unfair devaluation.
"The yuan has already weakened significantly, to offset the tariffs announced so far," said Mr Alan Ruskin, Deutsche's global head of G10 FX strategy. "Further weakness could exacerbate concerns of a self-fulfilling flight of capital, and a loss of control."
There was also a danger for the US if Beijing has to intervene heavily to support the yuan.
"China buying yuan and selling dollars would likely entail some selling of US Treasuries at a point where the market is showing some vulnerability, and could be very vulnerable to signs of China liquidation," added Mr Ruskin.
The dollar was already losing ground to both the yen and the euro, as investors favoured currencies of countries that boasted large current account surpluses.
The euro pushed up to US$1.1538 and away from a low of US$1.1429 early in the week. The dollar fell back to 112.10 yen, a telling retreat from last week's 114.54 peak.
That left the dollar at 95.408 against a basket of currencies.
In commodity markets, gold got a modest safety bid and edged up to US$1,193.71. Oil prices skidded in line with US equity markets, even though energy traders worried about shrinking Iranian supply from US sanctions and kept an eye on Hurricane Michael, which closed some US Gulf of Mexico oil output.
US crude was off 52 cents at US$72.65 in Asia, while Brent crude had yet to trade after falling 2.3 per cent overnight to end at US$83.09 a barrel.