Stocks fell in Asia Friday as China unexpectedly opted against cutting a key policy interest rate, a reduction that had been widely expected to support an economy hamstrung by Covid lockdowns.
Equities were mixed on the mainland and fell in Japan and South Korea, among the few markets open amid Easter holidays. China has indicated it will reduce the reserve requirement ratio for banks soon, which may have made a cut in the rate on one-year policy loans less urgent.
The Asian weakness followed a technology-led retreat in US shares as worries about faster inflation and aggressive Federal Reserve tightening flared anew.
Treasuries also slid Thursday, hurt by higher US import prices and comments from Federal Reserve official John Williams that a half-percentage point rate hike is a “reasonable option.” Treasury markets are shut for Good Friday. The dollar rose against all its Group-of-10 peers, with the yen struggling.
Oil’s biggest weekly rally this month underlined global price pressures. Crude was bolstered by a report saying the European Union is moving toward adopting a phased ban on imports from Russia due to the war in Ukraine.
The rise in bond yields weighed on gold and Bitcoin. The world’s largest cryptocurrency traded at about $40,000 (€37,018).
The gyrations in bond markets remain centre stage for investors, reflecting the ebb and flow of concern over when inflation will peak and the potential economic damage from tighter monetary policy across much of the world.
“We don’t think there’s going to be a recession,” Julian Emanuel, chief equity strategist at Evercore ISI, said in an interview on Bloomberg Television. “We don’t think the Fed is going to break the glass. But the problem is investors aren’t in that mindset quite yet.”
In Europe, policy makers are forming a consensus around raising rates in the third quarter to tackle record inflation, according to people familiar with the matter. The European Central Bank’s first hike in borrowing costs in more than a decade is expected to be by 25 basis points.
Meanwhile, Twitter closed lower, whipsawed by billionaire Elon Musk’s offer to buy the social-media giant. The firm is said to be considering adopting a measure that would protect it from hostile acquisition bids.
Traders at Wall Street’s biggest investment banks had a better-than-expected quarter as the war in Ukraine compounded volatility. But questions are emerging about future earnings growth as fears of recession creep in.
“No one ever suggested that when the Fed begins raising rates that the market sells off dramatically,” Quincy Krosby, chief equity strategist at Lpl Financial, said on Bloomberg Television.
“It doesn’t. The market can do very well. This time around you’ve got quantitative tightening with it, the complete opposite of the flood of liquidity. It makes a big difference.” – Bloomberg
