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Asian stock market extends rout after Wall Street sees biggest drop in two years; bonds climb on growth fears

An Asia-Pacific equity index shed about 2%, led by losses in Japan and in Chinese technology firms. US and European futures retreated in the wake of a 4% plunge in the S&P 500 index, the biggest daily drop in almost two years.

Asian stock market, Wall Street
S&P 500 futures fell 0.6% and Nasdaq 100 futures shed 0.9% in eqarly trade on Thursday. (File: Reuters)

Stocks extended a selloff Thursday as fears of an economic downturn frayed sentiment and spurred a flight to havens including bonds.

An Asia-Pacific equity index shed about 2%, led by losses in Japan and in Chinese technology firms. US and European futures retreated in the wake of a 4% plunge in the S&P 500 index, the biggest daily drop in almost two years.

Earnings reports from US consumer stalwarts stoked worries that high inflation is weighing on margins and consumer spending. Target Corp. sank the most since Black Monday in 1987, a day after Walmart Inc. also spiraled lower.

Federal Reserve officials reaffirmed that sharply tighter monetary policy lies ahead to cool economic activity and get price pressures under control. Chicago Fed President Charles Evans said raising interest rates somewhat above the neutral level and stopping there should help bring inflation down.

Treasuries held a rally, bonds in Australia jumped and the dollar remained firm. China’s Covid lockdowns are also buffeting markets, keeping oil at around $110 a barrel after a retreat this week on worries about demand.

The challenge from inflation for bellwether retailers weakens the argument that corporate earnings can help stem this year’s rout in stocks. Instead, global equities are sliding toward a bear market as recession fears mount.

“We are pricing in a growth scare,” Lori Calvasina at RBC Capital Markets told Bloomberg TV. “The market is trying to find a bottom here. There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.”

Signs of stress are building in credit markets. Yield premiums on US investment-grade corporate dollar bonds jumped five basis points Wednesday, in one of their biggest moves this year, a Bloomberg index shows. They are now at their highest since mid-2020.

‘New Phase’
“We’ve had investors for the most part who’ve lived through three or four decades of declining interest rates, rising multiples for equities and strong earnings for the most part,” Christopher Smart, chief global strategist at Barings LLC, said on Bloomberg Television. “Now you’re entering a very new phase where we’re not really quite sure where inflation is going to level off.”

In other company news, Tencent Holdings Ltd. dived after warning it will take time for Beijing to act on promises to prop up the Chinese tech sector. Cisco Systems Inc. slid in extended US trading on a disappointing revenue outlook.

Meanwhile, Treasury Secretary Janet Yellen confirmed it’s unlikely the US will allow Russia to continue making bond payments on its foreign-currency debt, as investors have had time to adjust to Moscow’s exclusion from the global financial system for the war in Ukraine.

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.6% as of 10:43 a.m. in Tokyo. The S&P 500 fell 4%
  • Nasdaq 100 futures shed 0.9%. The Nasdaq 100 fell 5.1%
  • Japan’s Topix index lost 2.2%
  • Australia’s S&P/ASX 200 index fell 1.7%
  • South Korea’s Kospi index shed 1.8%
  • China’s Shanghai Composite index declined 1%
  • Hong Kong’s Hang Seng index fell 3%
  • Euro Stoxx 50 futures retreated 1.2%

Currencies

  • The Bloomberg Dollar Spot Index was steady
  • The euro was at $1.0479
  • The Japanese yen was at 128.47 per dollar
  • The offshore yuan was at 6.7789 per dollar

Bonds

  • The yield on 10-year Treasuries was at 2.89%
  • Australia’s 10-year yield fell 10 basis points to 3.37%

Commodities

  • West Texas Intermediate crude rose 0.4% to $110.05 a barrel
  • Gold was at $1,816.63 an ounce

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