Asia shares skid as inflation shadow spooks bonds
SYDNEY (Reuters) - Asian shares fell the most in over a year on Monday as fears of resurgent inflation battered bonds, toppled Wall Street from record highs and sparked speculation that central banks globally might be forced to tighten policy more aggressively.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.8 percent in the largest daily drop since late 2016.
E-Mini futures for the S&P 500 fell another 0.44 percent, an unusually sharp move for Asian hours and suggesting further losses in US markets later in the session.
Japan’s Nikkei sank 2.4 percent, while Australia’s main index lost 1.7 percent and Chinese blue chips slid 1.1 percent.
Investors were spooked by Friday’s US payrolls report which showed wages growing at their fastest pace in more than 8-1/2 years and fuelling inflation expectations.
Futures markets reacted by pricing in the risk of three, or even more, interest rate rises from the Federal Reserve this year.
“The earnings data fits too closely with the narrative of emerging wage pressures to be dismissed,” said Deutsche Bank macro strategist Alan Ruskin.
“The data will add fuel to the debate on whether the Fed is falling behind the curve. It will raise the chances of the Fed median dots shifting up to four rate hikes for 2018,” he added.
That would be negative for emerging markets and commodity currencies, said Ruskin. Both the Australian and New Zealand dollars fell sharply in the wake of the job numbers, along with a range of Asian currencies.
It was also a major blow to government bonds. Yields on 10-year US Treasury paper were up at a four-year peak of 2.86 percent, having jumped almost 7 basis points on Friday.
The 2-year yield was near a nine-year top at 2.162 percent, tightening financial conditions and offering a more competitive return compared to equities. The dividend return of the Dow, for instance, was 2.13 percent.