Short-term U.S. yields hit 23 month highs and the dollar strengthened on Thursday after the chairman of the Federal Reserve signaled plans to tighten policy.
The share rout looked set to continue into European and U.S. trading. Pan-region Euro Stoxx 50 futures lost 2.88%, FTSE futures lost 1.98%, Nasdaq futures dropped 1.73% and S&P 500 e-minis fell 1.56%.
Powell warned that inflation is above the Fed's long-run goal and supply chain issues may be more persistent than previously thought.
David Chao, Asia Pacific ex-Japan market strategist, said there was a shift in terms of a relatively dovish statement and then a relatively hawkish press conference.
Powell is not committing to the size or frequency of rate hikes and the timing of the balance sheet reduction. I think that gives him a bit of a bit of wiggle room as to how quickly and with what velocity he wants to normalise monetary policy in the U.S. said Chao, adding that moves would depend on upcoming economic data.
The Fed funds futures showed traders pricing in as many as five hikes by December, after previously fully pricing for four increases.
There are concerns that the Fed will be more focused on fighting the inflation walloped share markets. MSCI's broad gauge of regional markets outside Japan fell by 2.2% on Thursday to its lowest level since Nov. 5, 2020, and is on track for its worst week since Feb. 2021, as per the broad gauge of regional markets outside Japan.
Hong Kong's Hang Seng index fell 2.4%, Australian shares fell 1.77% and Chinese blue-chips dropped to their lowest level since Sept. 30, 2020 as Refinitiv flows data pointed out heavy selling by foreign investors through the country's Stock Connect scheme.
The Nikkei fell by more than 3% in Tokyo, touching its lowest point since Nov. 2020.
Expectations of Fed tightening sent the policy-sensitive U.S. 2 year yield to a top of 1.1920% in Asian trade, a level last reached in February 2020. The benchmark 10 year yield was steady at 1.8495%, having hit a high of 1.88% on Wednesday.
The dollar's index, which measures the dollar against major peers, was lifted to 96.604, near five week highs, lifting it to 96.604, near five-week highs. We've got a decent set-up on the dollar-yen because of the fact that yield differentials matter again. Matt Simpson, senior market analyst at City Index, said if you look at the yield differential between the US and Japanese, it's just shot up.
The spread between the US and Japanese 2 year yield widened to 124.22 basis points on Thursday, its highest since February 2020.
Oil prices slowed, but remained elevated near $90 per barrel, a level last seen in October 2014, due to tensions between Russia and Ukraine.
The United States stated on Wednesday that it had set out a diplomatic path to address Russian demands in eastern Europe, as Moscow held security talks with Western countries and intensified its military build-up near Ukraine with new drills.
On Thursday, global benchmark Brent crude fell 0.8% on profit taking to $89.15 per barrel. U.S. West Texas Intermediate crude was down 0.94% to $86.53.
The White House said it faces challenges finding alternative sources of energy supplies because of the talks with major energy-producing countries and companies around the world over a possible diversion of supplies to Europe if Russia invades Ukraine.
Spot gold fell 0.3% to $1,813 an ounce, having been as high as $1,853 at the time of writing. 6 earlier in the week.
When you see gold falling with stocks, it's a sign that things aren't so well, but you can really tie everything back to the Fed raising rates, the dollar soaring with the yields, everything else is going the opposite way, said Simpson at City Index.