LONDON (Reuters) – Global equities fell on Friday, with Asian equities falling by more than nine months as a slump in global bond markets lowered yields and scared investors amid fears that heavy losses could trigger the affected sale of other assets.
The EMCI equity index in emerging markets fell the most daily in almost 10 months and was 2.7% lower, while European shares opened in the red, with STOXX 600 down 0.7% , recovering from higher losses at the beginning of the session.
The MSCI World Equity Index, which tracks stocks in 50 countries, was 0.9% lower and heading for its worst week in months.
Asia recorded the heaviest sale, with the highest MSCI Asia-Pacific stock index outside Japan, which fell by more than 3% to its lowest level in a month, the steepest one-day percentage loss since May 2020.
For the week, the index fell more than 5%, the weakest weekly indicator since March last year, when the coronavirus pandemic raised fears of a global recession.
“This is not the beginning of a stock correction, but rather a logical consolidation, as price-to-earnings ratios have been excessive,” said Francois Savary, investment director at Switzerland’s First Partner.
“What is reassuring is that earnings in the fourth quarter of 2020 have been good, and earnings per share are surprisingly good, and that means we should be back on the right track.”
Friday’s massacre was triggered by a whiplash.
The scale of the sale prompted Australia’s central bank to launch a surprise bond purchase operation to try to bleed.
The European Central Bank is monitoring the recent rise in the cost of government bond loans, but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper.
On Friday, German 10-year bond yields fell by almost 4 basis points to -0.267%, and French and Austrian bonds returned to negative territory.
10-year treasury yields fell to 1.4530% from a one-year high of 1.614% on Thursday.
“Bond yields could continue to rise in the short term, although bond sales are generating more bond sales,” said Shane Oliver, head of investment strategy at PHC.
“The longer this continues, the greater the risk of a more severe correction in the stock markets, if earnings updates struggle to keep pace with rising bond yields.”
Markets were hedging the risk of a previous Federal Reserve rate hike, although officials this week promised that any move would be long in the future.
Currently, Fed funds futures prices are almost entirely up from 0.25% by January 2023, while Eurodollars have reduced it by June 2022.
Even the thought of a possible end to very cheap money sent shivers down the global stock markets, which regularly reached record highs and expanded valuations.
“The transition to fixed income is becoming a more lethal phase for risky assets,” said Damien McColough, head of Westpac’s rate strategy.
“Rising yields have long been seen as a story of improving growth expectations, if anything covering risky assets, but the overnight move has included a sharp rise in real rates and a rise in expectations. Fed.
Japan’s Nikkei fell 4%, the biggest one-day drop in April, and Chinese chips joined the retreat with a 2.4% drop.
URGENT DEFORMATION
Overnight, the Dow fell 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest decline in nearly four months for the tech-heavy index.
Dear technicians have all suffered, with Apple Inc., Tesla Inc., Amazon.com Inc., NVIDIA Corp. and Microsoft Corp. being the biggest attractions.
All of this has raised the importance of data on personal consumption in the US, which is to come later, which includes one of the inflation measures favored by the Fed.
Core inflation is expected to fall to 1.4% in January, which could help ease market anxiety, but any upward surprise is likely to accelerate the fall in bonds.
Rising treasury yields have led to declines in emerging markets, which feared that better yields in the United States could attract funding.
Favored currencies for leverage transactions, all suffered, including the Brazilian real, the Turkish lira and the South African turn.
Flows helped boost the broader US dollar, with the dollar rising to 90,390. It also won the low-yielding yen, briefly hitting its highest in September at 106.42. The euro reduced its touch to $ 1.2144.
Yield growth stained gold, which does not offer a fixed return, and pulled it down 0.1% to $ 1,767.81 an ounce, previously falling to its lowest level since June 26.
Oil prices fell to a higher dollar and expectations of a higher supply fell.[O/R]
US crude oil fell 1.5 percent to $ 62.57 a barrel, and Brent also lost 1.3 percent to $ 66.02 a barrel.
Additional reporting by Swati Pandey to Sydney; Montage by Sam Holmes, William Maclean