Stocks are set to fall weekly as Reuters rates bite into reality

¬©Reuters. FILE PHOTO: A man wearing a protective mask walks past an electronic board displaying Japan’s Nikkei Index outside a brokerage shop in Tokyo, Japan amid the outbreak of the coronavirus disease (COVID-19) March 10, 2022. REUTERS/Kim Kyung Hoon

By Tom Westbrook

SINGAPORE (Reuters) – Stocks headed for a weekly loss on Friday as the prospect of aggressive global rate hikes finally began to shake investors, while bonds fell and the dollar appeared set for its best week in a month.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan was steady in morning trade and down about 1.5% so far this week. fell 0.2% on Friday and was heading for a weekly loss of almost 3%.

A late rally had lifted Wall Street indexes slightly, but they’re also all down for the week, led by a 2.5% loss for the interest-rate-sensitive Nasdaq. US futures were flat.

Federal Reserve policymakers are poised to begin cutting central bank assets from May and are poised to hike interest rates by 50 basis points at a time to curb inflation, meeting minutes and statements by officials this week showed.

The war in Ukraine and the shockwave it has unleashed on commodity prices, as well as the ongoing damage to supply chains from the pandemic, have put further pressure on consumer prices and fueled the sense of a major turnaround.

“Combine these… and the equity risk premium has to go up no matter which market,” said Lirong Xu, chief investment officer at Franklin Templeton Sealand Fund Management in Shanghai. “And interest rates won’t go down any further.”

“The past two decades have brought low inflation and a relatively peaceful world. Going forward, geopolitical conflicts could become increasingly volatile and have a greater impact on the overall global economy.”

The risk of populist disruption in the French presidential election has also roiled markets ahead of Sunday’s first round of voting, hurting the French debt and the euro.

A victory by far-right leader Marine Le Pen over incumbent Emmanuel Macron, while still unlikely, is now within error, opinion polls show, and the euro fell to a one-month low of $1.0858 in morning trade.

Elsewhere, long-dated Treasuries have borne the brunt of this week’s selling in bleeding bond markets as traders see they are hit hardest by the Fed’s slashing of bond holdings.

The benchmark is up 25 basis points (bps) this week to 2.6409% and was steady in Asian trading on Friday. The 30-year yield is up 22 basis points.

The US dollar was the main beneficiary and the US dollar, which measures the greenback against a basket of six major currencies, hit a nearly two-year high of 99.904 on Friday.

A stronger dollar and a drop in oil prices as supplies were released from reserves have also pushed commodity currencies off recent highs, doubling pressure on the battered yen. The Japanese currency is near its lowest level in years and was under pressure at 124.23 per dollar.

Futures remained at $100.56 a barrel and futures at $96.17. [O/R]

There were also some brighter spots as Australia’s bank and miner-dominated stock market had a steady week and European futures and futures posted gains of about 0.8% on Friday.

“A higher interest rate environment prevailing during the rate hike cycle will continue to favor value versus growth stocks and provide a more constructive outlook for sectors such as financials,” said Clara Cheong, a Singapore-based strategist at JP Morgan Asset Management.

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