GLOBAL MARKETS-Stocks headed for weekly loss on rate hikes

157
3
GLOBAL MARKETS-Stocks headed for weekly loss on rate hikes

SINGAPORE Reuters -- Stocks headed for a weekly loss on Friday as the prospect of aggressive global rate hikes began to rattle investors, while bonds fell and the dollar looked set for its best week in a month.

The broadest index of Asia-Pacific shares outside Japan was steady in morning trade and down about 1.5% for the week so far. Japan's Nikkei fell by 0.2% on Friday to head for a weekly loss of nearly 3%.

A late rally had lifted Wall Street indexes modestly, but they are all down for the week, led by a 2.5% loss for the rates sensitive Nasdaq. Federal Reserve policymakers are ready to start cutting the central bank's asset holdings from May and are prepared to move rates higher 50 basis points at a time to curb inflation, meeting minutes and remarks from officials this week.

The shockwave in Ukraine and the damage to supply chains from the Pandemic have added to the pressure on consumer prices and added to a sense of a major shift in trends.

The equity risk premium, no matter how big the market, has to go up, said Lirong Xu, chief investment officer at Franklin Templeton Sealand Fund Management in Shanghai. The last two decades brought low inflation and a relatively peaceful world. Going forward, geopolitical conflicts may become more volatile and have an impact on the whole world's economy. The risk of a populist upset in French presidential elections has also sent jitters through markets - dragging on French debt and the euro ahead of the first round of voting on Sunday.

The euro fell to a one-month low of $1.0858 in morning trade due to opinion polls showing that a victory for far-right leader Marine Le Pen over incumbent Emmanuel Macron is still unlikely.

Long-end Treasuries have suffered the brunt of the week's selling of bonds in haemorrhaging bond markets as traders see it hardest hit by the Fed's bond holdings.

The benchmark 10 year Treasury yield is up 25 basis points bps to 2.6409% this week, and was steady in Asia trade on Friday. The yield on the 30 year is up 22 bps.

The dollar was the primary beneficiary and the dollar index, which measures the dollar against a basket of six major currencies, hit an almost two-year high of 99.904 on Friday.

Commodity currencies have been pushed from recent peaks and the pressure on the yen has been increased because of the stronger dollar and an oil price easing with supplies being released from reserves. Japan's currency is near its lowest level in years and is under pressure at 124.23 per dollar.

Brent crude futures were steady at $100.56 per barrel and the U.S. crude futures held at $96.17. There were also some bright spots, with Australia's bank and mining heavy equity market hanging in for a steady week and European futures and FTSE futures posting gains of about 0.8% on Friday.

Clara Cheong, a Singapore-based strategist at J.P. Morgan Asset Management said that a higher rate environment will continue to benefit value compared to growth equities and will provide a more constructive outlook for sectors like financials.