Turbulence gripped global markets, sending equities tumbling and sovereign yields soaring, as the Federal Reserve’s latest policy tilt threatened to take away the oxygen of liquidity and low borrowing costs quicker than expected.

Equity benchmarks in Europe and Asia dropped the most since Dec. 20, catching up with Wednesday’s selloff in New York. U.S. index futures were down, though they bounced off the day’s lows. Yields on government bonds jumped from Japan to Germany and the U.K., tracking a spike in Treasury rates. The dollar advanced against all its Group of 10 peers, except the yen which caught a haven bid.

Minutes from the Fed’s December meeting showed officials’ increasing preference for a faster path of rate hikes and a shrinking of the bank’s $8.8 trillion balance sheet. That could bring curtains down on unprecedented policy accommodation which underwrote asset prices through the worst of the pandemic. The Fed is now at the core of the investment outlook for 2022, overriding continuing concerns such as slowing global growth, China’s regulatory crackdown and supply bottlenecks.

“There will undoubtedly be pockets of volatility surrounding Fed meetings throughout the year, but investors shouldn’t excessively fear the Fed, especially when there continue to be exciting alpha opportunities in markets,” Madison Faller, a global strategist at JPMorgan Private Bank, wrote in an email. “Growth and inflation will be decelerating throughout 2022, but nonetheless remain above historic trend levels. We think this will call for a much lower risk of a Fed-induced material market correction.”

The minutes, released Wednesday after the close of European markets, sparked a rout in U.S. stocks concentrated in expensive technology names. The Nasdaq 100 tumbled the most since March, while the 10-year Treasury rate crossed the 1.70% mark. 

The slump reverberated in Asia and Europe Thursday. German 10-year borrowing costs jumped to the highest since May 2019, while their Italian counterparts surged to a June 2020 high. Japan’s benchmark yield climbed to the highest since April 2021, while similar rates in Australia and New Zealand rose to the most since November and the U.K.’s 10-year yield jumped to an October high.

Treasuries extended their losses Thursday, with the rates between the two-year and 30-year tenors increasing between one and three basis points. 

Global stocks, too, reacted with shock initially though some of the optimism crept back in as the day progressed. The Hang Seng Tech Index in Hong Kong, which had echoed the Nasdaq selloff by falling to the lowest level since May 2020, rebounded late in the session. Alibaba closed 5.7% higher.

U.S. index futures were mixed in a volatile session. Contracts on the Nasdaq 100 Index were down 0.2% after earlier falling as much as 0.9%. S&P 500 futures were little changed and contracts on the Dow Jones Industrial Average edged higher.

Europe’s Stoxx 600 gauge traded 1% down, after a loss of as much as 1.6%. Carrefour SA advanced as much as 5.6% amid reports Auchan Holding SA was considering an all-cash offer for the French grocer. 

“At current levels, we do not believe that higher (real) yields are a game-changer for global equity markets,” Mathieu Racheter, the head of the equity strategy at Julius Baer said in an email. “In terms of market dynamics, the rotation from long-duration stocks, which have been among the big winners in 2021, toward more economically-sensitive sectors could continue in the short-term.”

What to watch this week:

• Fed’s Bullard discusses the U.S. economy and monetary policy in an event on Thursday
• Fed’s Daly discusses monetary policy on a panel Friday
• ECB’s Schnabel speaks on a panel Saturday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1% as of 9:27 a.m. London time
• Futures on the S&P 500 were little changed
• Futures on the Nasdaq 100 fell 0.2%
• Futures on the Dow Jones Industrial Average were little changed
• The MSCI Asia Pacific Index fell 1.4%
• The MSCI Emerging Markets Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.1306
• The Japanese yen rose 0.3% to 115.73 per dollar
• The offshore yuan fell 0.1% to 6.3837 per dollar
• The British pound fell 0.3% to $1.3511

Bonds

• The yield on 10-year Treasuries advanced one basis point to 1.72%
• Germany’s 10-year yield advanced two basis points to -0.06%
• Britain’s 10-year yield advanced four basis points to 1.13%

Source By: https://www.bloomberg.com/news/articles/2022-01-05/asia-stocks-to-fall-as-tech-rout-deepens-on-fed-markets-wrap