Asian stocks slump to 11-mth lows as higher-for-longer rate fears persist

HONG KONG : Asian stocks slid to 11-month lows on Wednesday, U.S. futures dropped and the dollar surged as Treasury yields spiked back toward peaks on fears that U.S. interest rates will stay high.

A rebound in U.S. home sales was the latest trigger for concern in the bond market. Corporate earnings have also been mixed. Alphabet shares logged their worst session since March 2020 overnight, dropping 9.5 per cent as investors were disappointed with stalling growth in its cloud division.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.5 per cent. Japan's Nikkei sank 2 per cent, as chip-related shares led a broad selloff. Alphabet shares slid another 2 per cent after hours and pulled Nasdaq futures down by 1.1 per cent.

The benchmark 10-year Treasury yield, a bedrock for pricing risk-taking across financial markets, jumped 11 basis points (bps) overnight and traded at 4.96 per cent on Thursday.

"There is no anchor in U.S. treasuries," said Ben Luk, senior multi asset strategist at State Street Global Markets.

"If (the 10-year yield) doesn't stay below 5 per cent, then I think it's still going to be a very choppy market for both U.S. and Asia," he said.

"Once you have more stable treasury environment, you will have a clearer earnings revision story," he added, noting markets dominated by tech firms will be vulnerable to higher interest rates.

Shares in Facebook parent Meta fell 4 per cent on Wednesday and another 3 per cent in after-hours trade after publishing results showing better-than-expected revenue but a cloudy outlook, with expenses seen topping Wall Street estimates.

Australian shares fell to a one-year low, as stronger-than-expected third-quarter inflation data raised bets that the central bank might raise rates next month.

The S&P/ASX 200 index retreated 0.6 per cent to 6,812.3 by around 0520 GMT, having earlier struck 6,777.4 - its lowest since Oct. 31, 2022.

In early European trades, the pan-region Euro Stoxx 50 futures were down 1.03 per cent , German DAX futures were down 0.93 per cent, while FTSE futures were down 0.6 per cent.

In the currency markets, the dollar index hit a two-week high of 106.77.

The yen weakened past 150 per dollar, a level that has put traders on guard for intervention to support the Japanese currency. By 0500 GMT the yen was trading at 150.45 per dollar - its weakest in a year.

The Australian dollar fell to an almost one-year low of $0.6271 in morning trade and was traded at $0.6287 by 0500 GMT. The head of Australia's central bank on Thursday said the strong third-quarter inflation report was around policymakers' expectations, and they were still considering whether it would warrant a rate rise.

The New Zealand dollar also hit a nearly one-year low at $0.5776.

In China, markets' bounce on news that China would issue a trillion yuan ($137 billion) in sovereign debt was quickly fading away, with mainland and Hong Kong indexes winding back gains. The Hang Seng fell 0.6 per cent.

Oil prices slipped. U.S. crude dipped 0.15 per cent to $85.26 a barrel. Brent crude fell to $89.89 per barrel.

Oil prices rose about 2 per cent on Wednesday on worries about the conflict in the Middle East, but gains were capped by higher U.S. crude inventories and gloomy economic prospects in Europe.

Gold was slightly higher. Spot gold was traded at $1,988.3837 per ounce.

South Korea's economy fared better than expected in the third quarter with the expansion underpinned by exports, backing the case for the central bank to keep rates on hold for the months ahead.

The won fell sharply, in line with the dollar's broad gains.

($1 = 7.3181 Chinese yuan renminbi)