SYDNEY, May 12 — An extended sell-off drove Asian shares to their lowest in seven weeks on Wednesday as surging commodity prices and growing inflationary pressure in the United States prompted markets to bet on earlier rate hikes and higher bond yields globally.
MSCI’s broadest index of Asia-Pacific shares outside Japan slumped 1.5 per cent, adding to Tuesday’s 1.6 per cent loss with all major indices under heavy selling pressure
Analysts said a combination of inflation fears and some investors cutting their exposure to over-stretched stocks or sectors was behind the recent downturn.
At 682 points, the regional index is not too far from a record high of 745.89 touched in February and is still up 3 per cent this year so far, on top of a 19 per cent jump in 2020 and a near 16 per cent rise in 2019.
China’s blue-chip share index was off 0.3 per cent.
Australian stocks slipped 0.6 per cent while South Korea’s KOSPI index skidded 0.7 per cent. Japan’s Nikkei reversed early gains to be down 0.4 per cent.
Taiwan’s benchmark index plunged 6 per cent from all-time highs to levels seen in February on fears it may raise its Covid-19 alert level in “coming days”, which would lead to closure of shops dealing in non-essential items as infections rise.
Analysts, however, doubted the broader equities sell-off would extend much further in a world of easy accommodative policy and fiscal largesse.
“Despite the severity of the moves, we sensed limited panic in our client conversations with many using (the) weakness as an opportunity to buy the dip, particularly in the value orientated areas e.g. banks, energy and insurance,” JPMorgan analysts wrote in a note.
Overnight on Wall Street, technology stocks were among the biggest losers though the tech-focused Nasdaq reversed the bulk of its early 2 per cent decline over the course of the day. The Dow dropped 1.4 per cent and the S&P 500 fell 0.9 per cent.
The equity rout barely helped drive any safe haven flows into the greenback even as futures pointed to yet another negative open for Wall Street. E-mini futures for the S&P 500 stumbled 0.7 per cent while futures for the tech-heavy Nasdaq were down 0.9 per cent.
“What is unusual about the last two days is that the equity-market angst did not provide the US dollar with a notable lift,” said Alvin T. Tan, head of Asia FX strategy at RBC Capital Markets.
Tan said there was no sign of “risk-off” among regional currencies either with the high-carry Indian rupees and Indonesia rupiah largely holding their ground.
“Still, it is not yet obvious if this signifies a new market paradigm. As they say, one swallow does not make a summer,” Tan added.
All eyes are now on the US consumer price index report to be released by the US Labour Department on Wednesday with market-based measures of inflation expectations having moved higher .
“Prices are definitely on the increase and this is evident across a wide range of sectors and geographies. What is less clear is the longevity of the increase in prices,” ANZ analysts wrote in a note.
Treasury yields have remained stuck to a tight range. The yield on benchmark 10-year Treasuries drifted lower to 1.6217 per cent, a far cry from the 2 per cent level seen in before the coronavirus pandemic.
The US Federal Reserve expects higher inflation though officials have pointed to transient factors and base effect for the temporary rise.
“The upshot is the Fed remains far away from achieving its aim of average inflation of 2 per cent per year. The Fed’s ultra-accommodative monetary policy is part of the reason why we consider the USD downtrend is intact,” said Commonwealth Bank of Australia analyst Carol Kong.
The dollar was up 0.2 per cent against the Japanese yen at 108.84 as it meandered in a narrow 107-110 band.
The dollar index, which measures the greenback against six major currencies, was a shade higher at 90.398, after touching a two-month low of 89.979.
The currencies of major natural resource suppliers such as Canada have been buoyant amid rising commodity prices.
The loonie held near a 3-1/2-year high of C$1.2078 (RM4.11).
The Australian dollar, another proxy for commodity prices, was not far from a 10-week high of US$0.7891 (RM3.26) struck on Monday. The Aussie, which is also played as a liquid proxy for risk, fell 0.7 per cent to US$0.7788.
Oil prices reversed some of the recent gains with US crude off 18 cents at US$65.10 a barrel. Brent crude slipped 25 cents to US$68.30 per barrel.
Spot gold was off slightly at US$1,827 an ounce.
In cryptocurrencies, ether hit a fresh record high touched on Monday to be at US$4,349.44. The value of the second-biggest digital token has surged over 5.5 times so far this year. — Reuters
