Stocks plunge to two-year lows as reality bites on prices

A silhouette of a man in front of a board showing the exchange rate of the Japanese yen against the US dollar outside a brokerage, after Japan intervened in the currency market for the first time since 1998 to support the faltering yen, in Tokyo, Japan on September 22, 2022. REUTERS/Kim Kyung-Hoon

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  • MSCI AxJ slips 1%; S&P 500 futures swing
  • Yen stabilizes but traders are wary of further intervention

SYDNEY (Reuters) – Stocks hit a two-year low on Friday and bonds expected big weekly losses as the prospect of US interest rates rising more and faster than expected, while a stronger dollar sent volatility in currency markets after Japan’s intervention. .

Interest rates rose sharply this week in the US, Britain, Sweden, Switzerland and Norway – among other places – but it was Fed members’ expectations of consistently high US interest rates through 2023 that launched the latest sell-off.

The MSCI World Stock Index (.MIWD00000PUS) touched its lowest levels since mid-2020 on Friday and has fallen about 12% in the month or so since Fed Chairman Jerome Powell made clear that lowering inflation would hurt.

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S&P 500 futures struggled to stabilize in the Asian session and fell 0.1%, while European futures were flat. The MSCI Asia Pacific Index outside Japan (.MIAPJ0000PUS) was down 1%. Unless it bounces back, it is on its way to its worst month since March 2020.

“It’s a coming reality,” said Sean Taylor, chief investment officer for Asia Pacific at DWS in Hong Kong.

“You had a market that thought interest rates would go down next year… Now that has changed a lot,” he said. And the stock market is now adjusting to that.

Bond and currency markets are also loose, as the recent rise in US interest rates has continued the dollar’s rally that is starting to cause some discomfort to trading partners.

The euro and the yen fell to 20-year lows on Thursday, until Japanese authorities intervened in the market for the first time since 1998 to buy the yen and halt its long decline. Read more

The resulting rally has sent the yen up to 142.20 against the dollar, on track for its best week in more than a month, although analysts say the yen’s respite is likely to be short-lived.

Other currencies were struggling for momentum. The euro was at $0.9825, just above the low of $0.9807.

The Australian and New Zealand dollars are hovering near their lowest levels since mid-2020, the British pound has been stalled at its lowest level in nearly four decades, and at 7.1028 against the dollar, the Chinese yuan is within walking distance of a record low.

volatility now

Bond markets have been in a meltdown as both investors and policymakers wrestle over how long short-term interest rates will need to tame hyperinflation around the world.

Britain is an example of this. On Thursday, the divided Bank of England raised interest rates by 50 basis points, disappointing currency traders, while promising bond sales and further increases that combined with fiscal policies sent bonds down along the curve.

Two-year gold bond yields are up nearly 50 basis points this week, en route to their worst week in 13 years.

Later on Friday, new Finance Minister Kwasi Quarting will announce a potentially inflationary fiscal plan and more bad news for UK government bonds. Read more.

Treasuries in Asia were not traded due to a public holiday in Japan, but longer-dated issuances were dumped overnight, sending the 10-year yield up nearly 20 basis points to 3.71%.

“The ten-year period has been catching up with the newly calibrated liquidity ratio,” said Damian McCullough, head of interest rate strategy at Westpac, in Sydney.

“If you think the front end is going to peak at 4.60%, can you really keep the 10-year bond yields at 3.70%?” He said.

“It’s a very volatile price movement…I think this volatility continues across all markets in the near term (until) the price market stabilizes.”

In the commodity markets, oil was on track for a small weekly loss as an increase in interest rates added to demand concerns. Brent crude futures hovered at $90.07 a barrel in Asia on Friday.

Gold, which does not pay income, suffered as US yields rose and last settled at $1,669 an ounce.

Bitcoin also took a beating while fleeing risky assets and settled at $19,423.

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Editing by Sam Holmes and Kim Coogill

Our Standards: Thomson Reuters Trust Principles.

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