Asian shares fall as investors fret over aggressive rate hike outlook

Asian shares fall as investors fret over aggressive rate hike outlook

A man wearing a protective mask walks past a coronaviruses disease outbreak COVID 19 and walks past an electronic board displaying Japan's Nikkei index outside a brokerage in Tokyo.

BEIJING Reuters- Asian shares fell on Friday as investors fretted about an increasingly aggressive rate-hike outlook for the United States and the fallout for the global economy from lock-downs in China.

In morning trade, the broadest index of Asia-Pacific shares outside Japan fell 1.1%, its sharpest decline in six weeks.

It was lower after a 1.6% loss for Australia's resource-heavy index, a 1.1% drop in Hong Kong stocks and a 0.3% retreat for blue chips in mainland China.

Overnight, US Federal Reserve Chairman Jerome Powell said a half-point interest rate increase would be on the table when the Fed meets in May, and it would be appropriate to be moving a little faster. According to his remarks, the market expectations of at least another half-point rate hike from the Fed next month are confirmed, and Nomura expects to see 75 basis point hikes at its June and July meetings, which would be the biggest since 1994.

The yield on five-year Treasury notes rose to 3.04%, the highest late 2018 yield on the U.S. Treasuries. The yield on 10 year Treasury notes was at 2.9483%, up from the previous close of 2.9076 and not too far off from 2.9810%, a 40 month high on Wednesday.

The two-year yield was up from the close of 2.6739% the previous day, reflected by traders' expectations of higher Fed fund rates.

Markets were still reeling from comments by European Central Bank officials that the central bank might hike euro zone rates as early as July. German two-year yields hit an eight-year high overnight.

Pan-region Euro Stoxx 50 futures fell 2.33% in early Asian trade, German DAX futures were down 1.87% and FTSE futures were down 1.39% - particularly large falls for the Asian timezone.

The prolonged lockdown in Shanghai and its impact on the world's second-largest economy have weighed on local stocks and the Chinese currency.

Citi analysts believe that the Chinese economy is likely to reinforce upside inflation pressures in the coming weeks and months.

They wrote in note that they continue to think inflation concerns will weigh on currencies with dovish central banks.

The U.S. dollar was relatively unchanged against a basket of major currencies on Friday, although it stayed above 100, buoyed by rising U.S. Treasury yields.

The dollar was down 0.2% against the Japanese yen, as the Fed's increasingly hawkish posture stood in even greater relief to Bank of Japan's ultra-easy policy.

The Chinese currency hit a new seven-month low of 6.4748 in early trade onshore. It tumbled through its 200 day moving average earlier this week.

Powell's comments overshadowed robust U.S. corporate earnings and jobless claims data that showed the number of Americans filing new unemployment benefits fell last week, suggesting that April was another month of strong job growth.

The Dow Jones Industrial Average fell by 1.05%, while the S&P 500 lost 1.48% and the Nasdaq Composite dropped 2.07%.

Concerns about Russian oil supply due to a European Union ban on Russian oil was offset by demand worries. Brent crude fell 1% to $107.17 per barrel, while U.S. crude fell 1% to $102.68 a barrel.

Looming rate hikes weighed on gold. Spot gold was down 0.12% to $1,949. 58 per ounce.