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Asia: Markets tumble on US yields, China row worries
[HONG KONG] Asian markets suffered further losses Thursday, hit by mounting fears about the path of US interest rate hikes and the increasingly fraught relations between China and the United States.
Traders tracked a sell-off on Wall Street, where all three main indexes were hit by another increase in the 10-year US Treasury yield to a fresh seven-year high.
With Treasuries the key gauge for Federal Reserve policymakers when deciding interest rate hikes, markets are growing more concerned that the cost of borrowing will rise more than previously expected and in turn hit the economy.
This week also saw Fed chief Jerome Powell deliver a hawkish assessment of rates, which added fuel to the fire for many who are predicting a quick pace of hikes.
The prospect of borrowing costing more, slamming the door shut on a decade of ultra cheap cash, has sent investors running for the hills, with indebted emerging market economies in the spotlight as it makes their dollar-denominated repayments harder.
"This week's Fed speak does paint an exceedingly rosy picture of the US economy, the prospect of higher inflation and the Fed responding with even quicker and steeper rate hikes," said Stephen Innes, head of Asia-Pacific trading at OANDA.
"Historically, faster-than-expected Fed rate hikes have posed a considerable negative for equity markets."
Eyes are now on the release later Friday of US jobs data, with a strong reading expected to push Treasury yields even higher.
While the trade war between Beijing and Washington has taken a back seat for now, fears over rates are driving selling.
Stocks in Hong Kong, where monetary policy is linked to the Fed because of the city's dollar peg, fell 0.7 per cent Friday, having already lost more than four per cent this week.
Chinese PC maker Lenovo plunged more than 20 per cent and telecoms equipment maker ZTE lost 10 per cent after Bloomberg reported that Beijing used microchips inserted in US computer goods to steal technology secrets.
It said the chips were used on equipment made for Amazon and Apple, and possibly for other companies and government agencies. It claimed a unit of the People's Liberation Army was involved the operation.
"Electronics produced in China may be viewed unsafe due to this news and tech shares are falling in general because of that," Ray K W Kwok, an analyst at CGS-CIMB Securities Hong Kong, told Bloomberg News.
Tokyo ended the morning 0.8 per cent lower, Singapore shed 0.3 per cent, Seoul was 0.8 per cent off and Taipei sank more than two per cent.
New Zealand, Manila and Jakarta were also well down.
The chip report came as markets grow concerned about China-US relations, which have taken a hefty knock from tit-for-tat tariffs that have fanned worries of an all-out trade war between the world's top two economies.
On Thursday Vice President Mike Pence added to the uncertainty by accusing Beijing of military aggression, commercial theft and rising human rights violations, while saying it was bent on interfering in upcoming US elections.
"There can be no doubt - China is meddling in America's democracy," he warned.
China called the claims "ridiculous", groundless and slanderous.
The chip story "plays heavily into the view that the Sino-US trade stoush is not just about Trump's infatuation with the size of the US-China bilateral trade balance", said Ray Attrill, head of foreign exchange strategy at the National Australia Bank. "But is a much more geopolitical affair as well as being related to China's desire to dominate the technology sphere. It means that an early resolution of Sino-US trade issued is not a realistic prospect."
On oil markets both main contracts edged up after seeing sharp losses Thursday, having soared to fresh four-year highs on expectations next month's Iran sanctions will hit global output levels.