Stocks slumped in Asian trading on Wednesday as a bond market-induced selloff on global markets spilled over into the region, after renewed attacks by the U.S. on Iran pushed oil prices higher.
MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled 1.5% as South Korea’s KOSPI dropped more than 3%, while the Nikkei 225 was down 2.6%. S&P 500 e-mini futures were down 0.1%.
Brent crude futures extended gains into a second day as trading resumed in Asia, rising 1.3% to $95.91 a barrel after the U.S. launched a barrage of airstrikes on Iran on Tuesday, which earlier pushed oil prices to a five-week high.
“The threat of further disruptions to the Strait of Hormuz has brought about renewed anxiety over inflation, driving a selloff in stocks across most major markets and a rout in global bond markets,” Westpac analysts wrote.
The yield on the U.S. 10-year Treasury bond hit an intraday high of 4.8122%, its highest level in almost three years, while the yield on the 5-year Japanese government bond rose to 2.295%, its highest level on record.
“September kicked off on a shaky note as developed market government bonds continued to sell off,” DBS analysts wrote.
“Brace for a volatile month ahead as high yields cause angst across the asset classes,” they added. “If the bond rout does not get stemmed, policymakers would probably have to resort to more aggressive measures to cap yields.”
The kiwi dollar was down 0.6% at $0.5855 after the Reserve Bank of New Zealand hiked interest rates by 25 basis points to 2.75%, as expected by markets, though dovish language in the central bank’s statement weighed on the currency.
The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was up 0.1% at 99.79, its highest since August 17.
Overnight on Wall Street, the S&P 500 slipped 0.7% and the Nasdaq Composite fell 1% as a surge in government bond yields weighed on equities.
The declines came as data from the Institute for Supply Management released on Tuesday showed U.S. manufacturing activity moderated in August amid a slowdown in new orders, but remained in expansionary territory.
Traders believe that the Federal Reserve is likely to lift interest rates at its next meeting in two weeks, though a hike is not certain.
Fed funds futures are pricing an implied 67% probability of a 25-basis-point increase to benchmark borrowing costs at the U.S. central bank’s two-day meeting ending on September 16, compared to a 39.6% chance a week ago, according to the CME Group’s FedWatch tool.
Gold was down 0.8% at $4,295.70 an ounce, while bitcoin slipped 0.6% to $76,979.55 and ether was 0.9% lower at $2,397.78.
-Reuters
