Saturday, July 2, 2022

Asian markets fall after weak showing on Wall St, oil tumbles

Asian markets fall after weak showing on Wall St, oil tumbles

SINGAPORE (Reuters) – Asian share markets tumbled on Friday, tracking losses on Wall Street, as lingering concerns over the Federal Reserve's tightening and weaker-than-expected economic and earnings data weighed on sentiment ahead of a Fed policy meeting next week.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.3%, dragged by Australian shares which fell 2.34%, while Japan's Nikkei stock index slid 1.47%.

Nasdaq futures slid 1.2% in Asian trading, hurt by Netflix Inc forecasting weak first-quarter subscriber growth after the close. The S&P 500 e-minis , were down 0.68%.

The drop was set to continue in Europe. In early European trades, the pan-region Euro Stoxx 50 futures were down 1.84%, and FTSE futures were down 1.34%.

"The selloff of US stocks yesterday was brutal and will dominate Asia," said Rob Carnell, chief economist at ING in Singapore.

"But there are pockets of optimism like China's more accommodating moves on monetary policy," he added.

The Nasdaq dropped late in the US session, to close 1.3% lower, as investors anxiously await the Fed's FOMC meeting next week for details on how it intends to tackle high inflation. 

The moves extended to Chinese shares with the Hong Kong benchmark losing 0.75% after posting its best day in six months the day before and Chinese blue chips losing 0.8%, also after gains the day before.

China cut its benchmark mortgage rates on Thursday, the latest move in a burst of monetary easing aimed at propping up an economy soured by a troubled property sector and worries over the Omicron variant of coronavirus. 

That failed to cheer up the markets on Friday, even as sources told Reuters that China's central bank will cut interest rates on its standing lending facility loans, following similar reductions in other liquidity tools. 

Analysts at Nomura believe the impact from cuts to benchmark lending rates would be quite limited, as these cuts are too small to have a material impact.

Market sentiment was also weakened by comments made by US Treasury Secretary Janet Yellen on inflation, said Kyle Rodda, market analyst at IG Markets.

"Less than a week out from the FOMC meeting, investors are worried that the central bank is going to flag aggressive rate hikes and an imminent and rapid unwind of its balance. In effect, it may throw the stock market under the bus to stamp out inflation."

Yellen said on Thursday she was confident the Federal Reserve and the Biden administration would take steps needed to bring down inflation over the course of 2022, provided the COVID-19 pandemic is brought under control. 

In commodities, oil prices plunged on Friday, after rising to seven-year highs this week, as an increase in US crude and fuel stockpiles prompted investors to take profits from the rally. 

US crude dipped 1.99% to $83.85 a barrel. Brent crude fell to $86.82 per barrel. Both benchmarks have gained more than 10% so far this year amid concerns over tight supply

US Treasury yields were slightly lower along the curve, having risen sharply earlier in the week as investors positioned themselves for the likelihood that the Federal Reserve will tighten monetary policy more aggressively to stave off inflation.

Yields on benchmark 10-year notes were last at 1.7737%, their lowest in a week, having hit a two-year high of 1.902% on Wednesday.

Rising yields had helped the dollar to gain earlier in the week, although on Friday the dollar index eased 0.08% against a basket of six major currencies.

The greenback did, however, lose ground on the safe haven yen , falling to a one-week low of 113.8 per dollar, while the risk friendly Australian dollar shed 0.5%.

Spot gold added 0.2% to $1,841.48 an ounce.