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Asian markets slide after Wall Street rout on inflation, rate hike consequences

Asian markets slide after Wall Street rout on inflation, rate hike consequences

FILE PHOTO: An investor sits in front of a board showing stock information at a brokerage office in Beijing, China, December 7, 2018. REUTERS/Thomas Peter

HONG KONG: Asian shares tumbled to their lowest in seven weeks on Friday (May 6) and the dollar stood tall as investors globally shunned riskier assets over fears that higher US interest rates and China's reinforcement of its zero-COVID policy could hit growth hard.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 2.65 per cent on Friday and fell to its lowest level since Mar 16, the day when Chinese vice premier Liu He boosted shares by pledging to support markets and the economy.

The benchmark is down 3.8 per cent from last Friday's close, which would be its worst week since mid-March. Japan's Nikkei bucked the trend, rising 0.56 per cent on its return from a three-day holiday.

Chinese blue chips shed 2 per cent, the Hong Kong benchmark lost 3.44 per cent, and China's yuan tumbled to an 18-month low in both onshore and offshore markets.

Shanghai, Sydney, Seoul, Bangkok, Taipei and Manila also tanked. Singapore's Straits Times Index was down 1.4 per cent.

Dickie Wong, director of research at Hong Kong brokerage Kingston Securities, attributed the falls to the Wall Street plunge overnight amid worries about aggressive US rate hikes, as well as fears about the health of the Chinese economy.

China will fight any comments and actions that distort, doubt or deny the country's COVID-19 response policy, state television reported on Thursday, after a meeting of the country's highest decision-making body.

Investors said that appeared to rule out any easing in the zero-COVID policy, which is slowing Chinese economic growth and snarling global supply chains.

"The silver lining is the expectation that new Chinese fiscal measures could come out over the weekend," Wong said. "That's the only thing giving Asian markets some support at their current low valuations."

Overnight on Wall Street, the Dow Jones Industrial Average and the S&P 500 both fell more than 3 per cent, and the Nasdaq Composite shed 4.99 per cent in its biggest single-day plunge since June 2020 to close at its lowest level since November 2020.

"Risks remain elevated for a policy mistake – either by (the Fed) not tightening quickly enough to combat inflation or being overly hawkish, resulting in the end of the current business cycle," said David Chao, global market strategist for APAC ex-Japan at Invesco.

US payroll data due later on Friday will help traders gauge how hot the economy is running.

The market is pricing in an 87 per cent chance of a monster 75 basis point rate hike from the Fed at its meeting in June, according to the CME's FedWatch tool. That's even after the Fed raised rates by 50 basis points this week and Chair Jerome Powell ruled out a 75 basis point hike.

US yields are rising on expectations of a fast pace of rate hikes. The yield on US 10-year notes was last 3.065 per cent after crossing 3.1 per cent overnight for the first time since November 2018.

Source: Reuters/gs

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