Bonds drive losses as rate hikes hit; the yen in the spotlight – Reuters

A man stands in front of a chart displaying the Japanese yen to US dollar exchange rate outside a brokerage, after Japan intervened in the currency market for the first time since 1998 to shore up the yen beaten, in Tokyo, Japan, September 22, 2022. REUTERS/Kim Kyung-Hoon/File photo

SYDNEY, Sept 23 (Reuters) – Asian stocks limped to a fourth straight weekly decline on Friday and bonds suffered heavy losses as investors scrambled to catch up with the U.S. Federal Reserve’s interest rate outlook, while currency markets were on edge at the end of a wild week.

Projections by Fed members for aggressive hikes and consistently high rates over the next year sparked another round of dollar buying that put other assets on the run.

Global stocks (.MIWD00000PUS) hit a two-year low on Thursday and are down 3% this week. The euro and yen fell to 20-year lows and on Thursday Japanese authorities intervened in the market for the first time since 1998 to buy yen and halt its slide.

The resulting spike takes the yen to 142.20 to the dollar and is on course for its best week in over a month and has, for now, dampened the dollar’s broader gains.

In regional markets, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.5% to a two-year low. It is down 3% this week. Japan’s Nikkei (.N225) was closed for a public holiday marking the autumnal equinox.

Overnight, Wall Street indices fell and longer-dated US Treasuries were undervalued – pushing the 10-year yield up about 20 basis points to 3.71% – as traders were trying to adjust to the prospect of US interest rates above 4% for some time.

“The 10-year was catching up with the newly calibrated cash rate,” Westpac head of rates strategy Damien McColough said in Sydney.

“If you think the front end will peak at 4.60%, can you really hold 10-year bond yields at 3.70%?” he said.

“It’s a very temperamental price action…I think this volatility continues in all markets in the near term (until) the rates market stabilizes.”

S&P 500 futures were up 0.1% and European futures were up 0.4% in early Asian trading.

INTERVENTION

Interest rates are rising sharply almost everywhere, with Britain, Sweden, Switzerland and Norway among the hikers this week – leading to strong selling in European bond markets, particularly gilts.

But the Fed’s outlook has overshadowed that of the currency market, as safety flows and rising yields help the greenback, while an energy crisis and a war at the gates weigh on the euro.

Preliminary surveys of the manufacturing sector in Europe and the announcement by the new British finance minister of his “growth plan” highlight the day ahead.

The euro was last at $0.9844, a fraction of Thursday’s 20-year low of $0.9807 – although all eyes were on the yen.

Japan did not disclose the size or details of its yen buying, but the dollar/yen fell two big legs in the last session in Asia and London on Thursday and the risk of another is probably enough. to scare off speculators for a while.

“It changes the dynamics of the market in terms of risk-reward for short-term players,” said UBS strategist James Malcolm.

The Australian and New Zealand dollars hovered near their lowest levels since mid-2020, with the Aussie remaining at $0.6638 and the Kiwi at $0.5852.

Sterling was parked by its lowest in nearly four decades at $1.1226.

The Chinese yuan, at 7.0964 to the dollar in offshore trade on Friday, is near its lowest in more than two years and within striking distance of a record low.

In commodity markets, oil is eyeing a small weekly loss as rate hikes spark demand concerns. Brent crude futures were hovering at $90.58 in Asia on Friday.

Gold, which earns no income, suffered as US yields rose and was last at $1,671 an ounce.

Bitcoin was also beaten amid the flight from risky assets and held at $19,322.

Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.