HONG KONG: Asian shares slid sharply and the safe-haven dollar held near a two-decade peak on Tuesday (Jun 14) after Wall Street hit a confirmed bear market milestone on fears aggressive US interest rate hikes would push the world's largest economy into recession.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.45 per cent in volatile trade, clawing back some of its earlier losses.
Australia's benchmark S&P/ASX200 closed 3.55 per cent lower while Japan's Nikkei stock index was down 1.33 per cent, having fallen as much as 2 per cent earlier in the session. Singapore was down 1 per cent.
The negative tone in Asia followed a bleak US session on Monday, which saw Goldman Sachs forecast a 75 basis point interest rate hike at the Federal Reserve's next policy meeting on Wednesday.
However, investors appeared to be shaking off the gloom heading into European trade with the pan-region Euro Stoxx 50 futures up 0.83 per cent, German DAX futures 0.9 per cent higher and FTSE futures rising 0.62 per cent. US stock futures also added 1.17 per cent.
"While there is clearly a risk from a significant policy tightening, it remains unlikely that there will be a fully fledged recession, with the unemployment rate jumping by two or more percentage points," said Stephen Koukoulas, managing director at the Canberra-based Market Economics.
"Rather, it is certain growth will slow - which is the aim of the policy tightening - and by late this year, inflation pressures should start to ease."
In Hong Kong, the Hang Seng Index pared earlier losses to be remain unchanged after trading in negative territory for most of the day.
China's blue-chip CSI300 Index retraced its lost ground to rise 0.8 per cent, while the Shanghai Composite Index gained 1 per cent, after dropping as much as 1.8 per cent.
Expectations for aggressive US rate hikes have risen after inflation in the year to May shot up by a sharper than predicted 8.6 per cent.
"The US market is the biggest in the world so when it catches a cold the rest of the world does as well," said Clara Cheong, global market strategist at JP Morgan Asset Management.
"There will be short-term volatility in Asia but we think in the medium to longer term in Asia ex-Japan, earnings expectations have already been downgraded so there is a relatively brighter outlook here than other parts of the world."
Cheong said China monetary easing and the re-opening of ASEAN economies from COVID-19 lockdowns could shield the region from some of the financial market fallout.
On Wall Street overnight, fears of a US recession kicked the S&P 500 down 3.88 per cent, while the Nasdaq Composite lost 4.68 per cent. The Dow Jones Industrial Average fell 2.8 per cent.
The benchmark S&P 500 is now down more than 20 per cent from its most recent record closing high, confirming a bear market, according to a commonly used definition.
Benchmark 10-year Treasury yields hit their highest since 2011 on Monday and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that Fed attempts to stem soaring inflation would dent the economy.
The yield on benchmark 10-year Treasury notes rose to 3.3466 per cent compared with its US close of 3.371 per cent on Monday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 3.3804 per cent compared with a US close of 3.281 per cent.
In currency markets, the dollar index, which tracks the greenback against a basket of major currencies, was at 104.98, just off a two-decade peak of 105.29 it hit on Monday.
Against the Japanese yen, the US currency was at 134.59, just below its recent high of 135.17.
The European single currency rose 0.2 per cent to US$1.0432, having lost 2.8 per cent in a month.
Bitcoin fell around 4.5 per cent on Tuesday to US$21,416, a fresh 18-month low, extending Monday's 15 per cent fall as markets were jolted by crypto lender Celsius suspending withdrawals.
Oil markets began to recover late in the Asian session with US crude up 0.13 per cent at US$121.08 a barrel, having traded down most of Tuesday. Brent crude firmed slightly to US$122.42 per barrel.
Gold shrugged off a weaker start with the spot price gaining 0.42 per cent to US$1,826.65 per ounce.