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HONG KONG (Reuters) – Asian stocks fell to a two-year low on Wednesday on the back of disappointing Chinese trade numbers, while the dollar surged as U.S. data reinforced expectations for aggressive Federal Reserve rate hikes.
The greenback flew past 144 Japanese yen and was up more than 1% at one point to 144.38 yen, while the Chinese yuan extended a slide, nearing the psychologically important 7 per dollar level.
European futures were last down 1% and FTSE futures fell 0.8%. S&P 500 futures dropped 0.2%.
China’s exports growth slowed in August, as surging inflation crimped overseas demand while lockdowns sapped local consumption and kept a lid on imports.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell to its lowest since mid-2020 and was last down 1.5%. Japan’s Nikkei fell 0.8%.
The dollar’s gains came as stronger-than-expected services data overnight reinforced the case for rate hikes, with markets now pricing in a 75% chance that the Fed raises rates by 75 basis points this month.
“The good news for the real economy has now become bad news for the market – both for the bond and the stock market,” said Redmond Wong, China market strategist at Saxo Capital Markets in Hong Kong.
“Investors we talked to … have lost quite a bit of confidence.”
Wall Street indexes fell on Tuesday with the Nasdaq losing for a seventh straight session, its longest streak since 2016. [.N]
Fixed-income markets are also buckling and benchmark 10-year U.S. Treasury yields touched 3.365% in Tokyo trade, the highest level since mid June.
Data overnight showed the U.S. services industry picking up in August for the second straight month amid stronger orders growth and employment.
YEN CRUSHED
The Japanese yen has now lost more than 2.5% on the dollar over two sessions, putting some investors on edge about the prospect of official intervention to arrest the slide.
Japanese officials have toughened their verbal warnings, with the top government spokesman saying Japan wants to act if “rapid, one-sided” moves seen recently continue.
“One of the things that we’re telling our clients is to cover their yen loans now,” said Davis Hall, head of capital markets at Indosuez Wealth Management Asia.
“If ever they talk intervention (dollar/yen) could revert swiftly lower.”
The euro was a whisker above a two-decade low at $0.9893, with investors waiting for Wednesday’s European Central Bank meeting.
Sterling looked fragile at $1.1479 with traders looking ahead to parliamentary testimony from the Bank of England governor.
Elsewhere, Australia’s S&P/ASX 200 index lost 1.4%, even as data on Wednesday showed Australia’s economic growth picked up in the second quarter, offering hope that activity could weather sharply higher interest rates and cost-of-living pressures.
Shares in Hong Kong fell 1.7%, dragging the index back to where it sat in March before official promises of major economic support. It was weighed down by the main tech index, which extended losses to 2.4% on fresh regulatory warnings.
Overnight, the U.S. Securities and Exchange Commission (SEC) cautioned that U.S. accounting firms risked breaching U.S. rules if they agreed to lead audits of New York-listed Chinese and Hong Kong companies looking to avoid potential trading bans.
In energy markets, crude oil prices stumbled on weaker consumption forecasts. U.S. crude fell 1.7% to $85.4 per barrel and Brent was at $91.7, down 1.3% on the day.
Spot gold fell 0.5% to $1,693 an ounce.
