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Stocks slump to 2-year low as rates reality bites

Stocks slump to 2-year low as rates reality bites Reuters. FILE PHOTO: A guy is silhouetted before a board displaying japan yen exchange rate contrary to the U.S. dollar outside a brokerage, after Japan intervened in the currency market for the very first time since 1998 to shore up the battered yen, in Tokyo,

By Tom Westbrook

SYDNEY (Reuters) – Stocks hit a two-year low on Friday and bonds eyed big weekly losses because the prospect of U.S. interest levels rising further and faster than expected rattled investors, while a rising dollar had foreign currency markets skittish following Japan’s intervention.

Interest levels rose sharply this week in america, Britain, Sweden, Switzerland and Norway – among other areas – nonetheless it was Federal Reserve members’ outlook for persistently high U.S. rates through 2023 that tripped the most recent round of selling.

MSCI’s world stocks index touched its lowest since mid-2020 on Friday and is down about 12% in the month roughly since Fed Chair Jerome Powell clarified that decreasing inflation would hurt.

struggled to steady in the Asia session and fell 0.1%, while European futures were flat. MSCI’s index of Asia shares outside Japan fell 1%. Unless it bounces, it really is on course for the worst month since March 2020.

“It’s reality coming through,” said Sean Taylor, Asia-Pacific chief investment officer at DWS in Hong Kong.

“You’d market that believed rates were decreasing next year…now that’s changed a whole lot,” he said. “And the equity market is currently adjusting compared to that.”

Bond and foreign currency markets may also be unmoored, with the most recent lift in U.S. rates extending a rally in the dollar that’s needs to cause some discomfort for trading partners.

The euro and yen fell to 20-year lows on Thursday, until Japanese authorities stepped into the market for the very first time since 1998 to get yen and arrest its long slide.

The resultant spike gets the yen around 142.20 per dollar and on course because of its best week in greater than a month, though analysts say the yen’s respite may very well be short-lived.

Other currencies were struggling for traction. The euro was at $0.9825, barely above its low of $0.9807.

The Australian and New Zealand dollars hovered near their lowest levels since mid-2020, sterling was parked by its lowest in nearly four decades and at 7.1028 per dollar is at striking distance of an archive low. [CNY/]

VOLATILITY NOW

Bond markets have been around in meltdown as both investors and policymakers grapple with what lengths short-term rates should rise to tame runaway inflation all over the world.

Britain is really a just to illustrate. On Thursday, a divided Bank of England hiked rates 50 basis points (bps), disappointing currency traders, while promising bond sales and additional hikes that as well as fiscal policies tanked gilts across the curve.

Two-year gilt yields are up nearly 50 bps this week, on the right track because of their worst week in 13 years.

Down the road Friday, new finance minister Kwasi Kwarteng will announce a fiscal plan that’s probably inflationary and much more bad news for gilts..

Treasuries didn’t trade in Asia due to a public visit to Japan, but longer dated issues were dumped overnight, sending the 10-year yield up about 20 bps to 3.71%.

“The 10-year was playing catch around the newly calibrated cash rate,” said Westpac’s head of rates strategy, Damien McColough, in Sydney.

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

“It is rather skittish price action … I believe that volatility continues in every markets in the near term (until) the rates market settles.”

In commodity markets, oil was on the right track for a little weekly loss as rate hikes raise demand concerns. futures hovered at $90.07 a barrel in Asia on Friday. [O/R]

Gold, which pays no income, has suffered as U.S. yields have risen also it was last flat at $1,669 an ounce.

has been likewise battered amid the flight from risky assets and held at $19,423.

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