Asian equities fall as government interest rates reach new highs

A display shows the Nikkei index after a ceremony marking the end of 2021 trading on the Tokyo Stock Exchange (TSE) in Tokyo, Japan on December 30, 2021. REUTERS / Kim Kyung-Hoon

TOKYO, Jan. 19 (Reuters) – Asia’s stock markets fell on Wednesday as US government yields reached new two-year highs and global technology stock sales made investors worry about inflation and prepare for tighter US monetary policy.

Oil prices reached their highest level since 2014, amid a power outage on a pipeline from Iraq to Turkey and global political tensions, which raised fears that inflation would become more persistent and support the dollar, which soared near a one-week high.

MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) reflected the gloomy tone, losing 0.7% in the middle of the afternoon after closing lower for four consecutive days.

Australia (.AXJO) fell 1.0%, while Japanese Nikkei (.N225) reached a three-month low as technology stocks fell and concerns about new curbs on companies to stop a record increase in cases of coronavirus dampened risk appetite. It was last down 2.7%. read more

Shares of Sony Group (6758.T) fell to their lowest level since late October, losing more than 10% after gaming rival Microsoft (MSFT.O) said it would buy developer Activision Blizzard (ATVI.O). read more

Elsewhere, South Korea’s Kospi (.KS11) lost 1.0%, while China’s blue-chip index (.CSI300) was down 0.6% despite expectations of more easing in central bank policy. Hong Kong’s Hang Seng Index (.HIS) counteracted the downward trend in flat trading.

Two-year government yields, which follow short-term interest rate expectations, were last at 1.069%, after reaching as high as 1.075%, the highest since February 2020, when traders positioned themselves for a more hawkish Federal Reserve ahead of the US Federal Reserve’s policy meeting next week.

“The speed of the short-term interest rate … raises concerns that Asia will follow interest rate increases very quickly,” said Sean Darby, global equity strategist at Jefferies.

The outlook for higher US interest rates also played out elsewhere in the fixed income markets, with longer-term US government interest rates reaching new two-year highs.

Ten-year interest rates increased by approx. 1 basis point to 1.8842% after hitting as much as 1.890%, while five-year interest rates were at 1.682%, and also stayed close to new two-year highs registered early in the session.

“Rates appear to be following the typical historical pattern of rising into the first Fed increase of the cycle,” said Rodrigo Catril, senior FX strategist at National Australia Bank, in a note.

“Another rise in oil prices and an ongoing reprising of Fed expectations are issues that play in the interest rate area with the US dollar largely stronger, and benefit from the combination of higher US government interest rates and an increase in risk aversion,” he added.

The dollar index, which follows the dollar against a basket of currencies from other major trading partners, fell slightly to 95,669.

The Australian dollar was just below its 50-day moving average of $ 0.71915, while the pound remained stable at 1.3609.

It will be in focus later on Wednesday when British inflation figures are ready, with annual headline inflation expected to reach its highest level in almost a decade at 5.2%.

Oil prices rose for a fourth day as a breach of a pipeline from Iraq to Turkey raised concerns about an already tight supply outlook amid geopolitical problems involving Russia and the United Arab Emirates. read more

U.S. crude rose 1.36% to $ 86.59 a barrel. Brent oil rose 1.21% to $ 88.57 a barrel.

Gold was a little lower. Spot gold traded at $ 1,811.35 per ounce.

Reporting by Daniel Leussink; Edited by Kenneth Maxwell and Kim Coghill

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