BANGKOK, June 14 (Reuters): Several emerging Asian stocks took a beating, currencies hit multi-month lows and bond yields soared on Tuesday as worries about a recession – due to sharp rate hikes of interest by the US Federal Reserve – overdrive.
Regional equities continued to be battered by growth concerns that hit US equities overnight, with benchmarks in South Korea, Singapore and Taiwan each losing more than 1%.
Expectations of aggressive U.S. rate hikes, which rose after higher-than-expected inflation last week, were boosted on Monday when Goldman Sachs forecast a 75 basis point (bps) hike at its monetary policy meeting. the Fed on Wednesday.
Fearing aggressive rate hikes could hurt growth, investors rushed to the safety of the U.S. dollar, which stood at a 20-month high as 10-year Treasury yields hit their highest on Monday. high level since 2011.
“The pandemonium in the markets accompanied by a combination of rising UST yields, falling equities and soaring dollar indicates political panic at work,” said Vishnu Varathan, an economist at Mizuho Bank. Indian equities bucked the overall trend and avoided a shock, after inflation cooled slightly in May.
Prices were still above the central bank’s tolerance band for a fifth consecutive month, indicating that rate hikes would continue.
Most emerging Asian currencies weakened. The Indonesian rupiah fell to its lowest since October 2020, the Malaysian ringgit hit its lowest since March 2020 and the Thai baht fell to its lowest since March 2017.
Yields on benchmark 10-year bonds jumped to a near-month high of 7.44% in Indonesia and rose 16 basis points to 3.2% in Thailand.
Stephen Innes, managing partner at SPI Asset Management, said there was a silver lining to the Fed “front-loading and telegraphing” a 75 basis point hike.
“This not only allows the market to prepare for the impact, but could also mean that the clouds of rising rates start to lift earlier on the horizon of the fourth quarter if an aggressive Fed charges. front end is stifling inflation,” he said.
Fed rhetoric this week, particularly around the pace and extent of further tightening, is also likely to inform future policy for regional central banks. -Reuter