Asian shares extend losses on fears of rising inflation

Asian stocks skidded to one-month lows on Friday as rising United States Treasury bond yields again rattled equity investors while hoisting the US dollar to a three-month high, which in turn dragged the Japanese yen down.

Energy markets were not spared the volatility either, with oil prices adding to big gains overnight after the Organization of Petroleum Exporting Countries and its allies (OPEC+) agreed to mostly maintain their supply cuts in April as they await a more solid recovery in demand affected by the coronavirus pandemic.

Australian stocks shed more than 1 percent, Japan’s Nikkei share average dropped 1.6 percent and shares in Seoul fell 1.4 percent. Chinese shares were in the red with the blue-chip CSI300 index off by 1.5 percent.

That sent MSCI’s broadest index of Asia-Pacific shares outside of Japan to 684.52, the lowest since February 1.

E-Mini futures for the US S&P 500 index were 0.5 percent lower.

US stocks dropped on Thursday after Federal Reserve Chair Jerome Powell disappointed some investors by not indicating that the US central bank might step up purchases of long-term bonds to hold down longer-term interest rates.

The tech-heavy Nasdaq Composite tumbled 2.1 percent, taking it down about 10 percent from its record close on February 12 and putting it in correction territory.

Even though Powell made it clear that the Federal Reserve was not close to changing its ultra-loose monetary policy stance anytime soon, some analysts still worried that rising Treasury yields could herald higher borrowing costs, thereby limiting the fragile US economic recovery.

“The market was seemingly looking for Powell to push back harder on the recent increase in yields,” said Ray Attrill, the head of forex strategy at National Australia Bank.

“Volatility seen in local interest rate markets yesterday with another large increase in long-term rates and government bond yields has set the scene for a choppy market again today if overnight developments are any guide.”

Rosier economic outlook

Bond investors with a bearish view of US Treasury bond prices took heart in Powell’s remarks and sold the notes. The yield on 10-year Treasuries climbed above 1.5 percent to as high as 1.5727 percent, but still below a one-year high of 1.614 percent struck last week. Bond yields rise as their prices fall.

The yield curve, a measure of economic expectations, steepened on rising yields, with the gap between two- and 10-year yields widening by another 6.3 basis points overnight.

Rising Treasury yields bolstered demand for the US dollar. The dollar index jumped to a three-month high of 91.734.

The stronger US dollar hobbled the Japanese yen. By early Friday, the yen fell to as low as 107.97 per dollar, the lowest since July 1 though it pared back some of those losses and was last at 107.85.

The euro was also tripped by the firmer dollar, with the common European currency sluggish at $1.1960.

Climbing yields and dollar strength pummelled gold prices, which sank to a nine-month low as investors sold the precious metal to reduce the opportunity cost of holding the non-yielding asset.

Spot gold slid another 0.2 percent early Friday to $1,692.26 per ounce, trading below $1,700 for the first time since June 2020.

Oil prices extended gains on early Friday after zooming higher overnight.

US crude futures climbed 17 cents, or 0.3 percent, to $64, holding below a 13-month high hit on Thursday. Brent crude rose 10 cents to $66.84 a barrel.

In the cryptocurrency market, bitcoin was down 4 percent at $46,422 on Friday.