HONG KONG — Asian shares slid sharply on Tuesday after Wall Street hit a confirmed bear market milestone and Treasury yields struck their highest in more than a decade on fears aggressive interest rate hikes would push the world’s largest economy into recession.
MSCI’s broadest index of Asia-Pacific shares outside Japan extended losses to be down 1.54%.
Australian shares S&P/ASX200 lost 4.6%, while Japan’s Nikkei stock index was down 2%.
In Hong Kong, the Hang Seng Index slipped 0.91% and China’s CSI300 Index was off 1.9%, doubling its earlier losses.
The negative tone in Asia follows a bleak U.S. session on Monday, which saw Goldman Sachs forecast a 75 basis point interest rate hike at the Federal Reserve’s next policy meeting on Wednesday.
“The U.S. will see rate rises faster and higher than Wall Street has been expecting,” James Rosenberg, Ord Minnett advisor in Sydney told Reuters. “There will likely be the double impact of earnings forecasts being trimmed and further price to earnings derating.”
Expectations for aggressive U.S rate hikes rose after inflation in the year to May shot up by a sharper than predicted 8.6%.
“The U.S. market is the biggest in the world so when it catches a cold the rest of the world does as well,” said Clara Cheong, Global Market Strategist, JP Morgan Asset Management.
“There will be short-term volatility in Asia but we think in the medium to longer term in Asia ex-Japan, earnings expectations have already been downgraded so there is a relatively brighter outlook here than other parts of the world.”
Cheong said expected China monetary easing and ASEAN countries re-opening from COVID-19 lockdowns could shield the region from some of the financial market fallout.
On Wall Street overnight, fears of a U.S. recession kicked the S&P 500 down 3.88%, while the Nasdaq Composite lost 4.68%. The Dow Jones Industrial Average fell 2.8%.
The benchmark S&P 500 is now down more than 20% from its most recent record closing high, confirming a bear market, according to a commonly used definition.
Benchmark 10-year Treasury yields hit their highest since 2011 on Monday and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that Fed attempts to stem soaring inflation would dent the economy.
The yield on benchmark 10-year Treasury notes rose to 3.3466% compared with its U.S. close of 3.371% on Monday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.3804% compared with a U.S. close of 3.281%.
“Higher inflation, slower growth and higher interest rates are a damaging combination for financial assets,” ANZ strategists wrote on Tuesday.
The dollar dropped 0.06% against the yen to 134.32 but remains close to its more-than-two-decade high of 135.17 reached on Monday.
The European single currency was flat at $1.0407, having lost 3.04% in a month, while the dollar index, which tracks the greenback against a basket of major currencies, was up at 105.19.
Bitcoin fell around 4.5% on Tuesday to $21,416, a fresh 18 month low, extending Monday’s 15% fall as markets were jolted by crypto lender Celsius suspending withdrawals.
U.S. crude dipped 0.13% to $120.77 a barrel. Brent crude eased to $122.08 per barrel.
Gold shrugged off a weaker start with the spot price gaining 0.42% to $1,826.23 per ounce.
(Reporting by Scott Murdoch in Hong Kong; Additional reporting by Alun John; Editing by Sam Holmes)