* MSCI AxJ index down 1.3%; Nikkei down 1.5%
* Wave of nerves as inflation and rates look sticky
* U.S. dollar climbs and risk-sensitive currencies slide
SINGAPORE, June 23 (Reuters) – Asian stocks slumped
toward their worst week of the year on Friday, oil fell and the
U.S. dollar surged as a string of hawkish central bank surprises
made investors nervous about the economic cost of taming
inflation.
MSCI’s broadest index of Asia-Pacific shares outside
Japan lost 1.3% and is down 4.2% for the week,
its worst in nine months. China was closed for a holiday but
Hong Kong shares returned from a break with a 2% tumble.
Japan’s Nikkei fell 1.5% and was set to snap a
10-week winning streak with a 2.7% weekly drop. S&P 500 futures
unwound overnight gains and fell 0.5%.
European futures fell 0.6%.
“The situation we’ve seen globally in the last couple of
weeks is that the Fed is going to be hiking more and it’s going
to take longer to cure this sticky inflation problem,” said
Damian Rooney, a dealer at Perth stockbroker Argonaut.
He said the Bank of England’s bigger-than-expected 50-basis
point rate hike was “the straw that broke the camel’s back.”
Markets see British rates hitting 6% by year’s end, but the
outlook inspired only the briefest jump in sterling before it
fell along with gilt yields on worry tightening brings economic
pain.
With a lack of stimulus for China’s sputtering recovery,
recent unexpected hikes in Australia and Canada and the Federal
Reserve’s forecast for two more rate hikes, the growth fears are
global.
Growth proxies such as oil and the Aussie dollar each
dropped about 1% on Friday. Brent crude was last at
$73.41 a barrel, while the Aussie is looking shaky at
$0.6698. Sterling fell 0.3% to $1.2709.
The U.S. dollar index rose 0.3% to 102.65 on Friday
and is eyeing a weekly gain for the first time in a month.
“The bottom line is that central banks around the globe are
becoming more hawkish now than a few months ago,” said Nomura
strategist Naka Matsuzawa in Tokyo.
“The market is starting to price in more hikes and later
timing of rate cuts. That’s the driving force.”
‘SENTIMENT’S WEAK’
The mood leaves markets fragile with British retail sales
data and purchasing managers’ index figures due globally later
in the trading day, where even positive surprises could auger
badly for the interest rate outlook.
Japan’s core inflation hitting its fastest pace in more than
four decades, as data showed on Friday, seemed only to
underscore the size and scale of central bankers’ problems.
The data offered some reprieve for the yen, which
defied the dollar’s strength to hold steady at 143.17 to the
greenback, but added to nerves everywhere else according to Wong
Kok Hoong, head of equity sales trading at Maybank in Singapore.
With onshore markets closed, China’s offshore yuan
slid to a fresh seven-month low of 7.2286 per dollar
as markets started doubting promises of economic stimulus even
after China cut benchmark interest rates this week.
“I believe market momentum will improve next Monday with
return of Southbound money and continued speculation for more
stimulus policies in July,” said Steven Leung, executive
director of institutional sales at UOB Kay Hian in Hong Kong.
In bonds U.S. Treasuries were sold when Fed Chair Jerome
Powell reiterated that further rate hikes are likely, and were
steady in Asia. Two-year Treasury yields held at
4.79% and 10-year yields at 3.78%.
Interest rate futures pricing implies about a 75%
chance that the Fed hikes rates next month.
The prospect of higher rates weighed on gold, which
pays no income, and it slid to three-month lows at $1,910 an
ounce.
Wheat futures took a breather after surging 20% in two weeks
as traders braced for Russia to quit a deal guaranteeing the
safe passage of grain over the Black Sea.
(Editng by Simon Cameron-Moore and Sam Holmes)
