Asian stocks fell Friday following a plunge in their U.S. counterparts as the dread that gripped equity markets earlier in the week re-emerged, amid concern rising interest rates will drag down economic growth.

Japan’s Topix Index fell as much as 3.3 percent before paring losses, while Australian and South Korean stocks dropped more than 1 percent. In the final hour of U.S. trading Thursday, the S&P 500 tumbled through 2,600 and the Dow failed to hold 24,000, levels they had jumped past just weeks ago. Both are headed toward their average price for the past 200 days, a level that technical analysts say may act as both a magnet and a floor.

U.S. Treasury yields, which helped trigger the violent downturn in equities this month, remain around four-year highs. West Texas Intermediate oil is heading down toward $60 a barrel. In stocks, the negative superlatives have piled up quickly: the S&P 500 has erased its gain for the year, closed at a two-month low and is on track for its worst week since 2011. The Dow plunged more than 1,000 points for the second time in four days. The MSCI Asia Pacific Index is set for the worst week since at least February 2016.

Pressure on U.S. stocks again came from the Treasury market, where another weak auction put gave bond bears ammunition, sending the 10-year yield as high as 2.88 percent. Equity investors took the signal to mean interest rates will push higher, denting earnings and consumer-spending power.

For a market that hadn’t fallen 3 percent from any high in more than a year, the week’s action was enough to rattle even the biggest equity bulls. Accustomed to buying the dip, that wisdom is now in question when more selling by speculators may be imminent. Over $5 trillion has been wiped from global stock markets since Jan. 26, according to S&P Dow Jones Indices.

“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” said Doug Cote, chief market strategist at Voya Investment Management. “They could be in full panic mode right now.”

As the equity selling intensified, haven assets grew attractive. Gold ticked higher, the yen held gains and even Treasuries pared the worst of their declines.

Volatility spread across assets. The Cboe Volatility Index was more than double its level a week ago. The VIX’s bond-market cousin reached its highest since April. A measure of currency volatility spiked to levels last seen almost a year ago, with a plunge in the yuan and a rise in the pound adding to turbulence. European equities weren’t spared, with the Euro Stoxx 50 volatility gauge spiking toward the highest since June 2016 -- the month of the Brexit vote.

Here are some events scheduled for the remainder of this week:

China releases inflation data for January

The Bank of Russia is set to hold a rates decision Friday, with most economists forecasting a cut.

And these are the main moves in markets:

Stocks

The MSCI Asia Pacific Index fell 1.3 percent as of 9:29 a.m. Tokyo time.

Topix index fell 2.7 percent.

Kospi index fell 1.8 percent.

Australia’s S&P/ASX 200 Index fell 1.5 percent.

Futures on the S&P 500 Index rose 0.3 percent.

Currencies

The Bloomberg Dollar Spot Index dipped 0.1 percent.

The Japanese yen was unchanged at 108.74 per dollar.

The euro rose 0.1 percent to $1.2255.

Bonds

The yield on 10-year Treasuries rose less than one basis point to 2.83 percent.

Japan’s 10-year yield fell one basis point to 0.074 percent.

Commodities

West Texas Intermediate crude fell 1 percent to $60.52 a barrel.

Gold rose 0.2 percent to $1,321.19 an ounce.

LME copper fell 0.5 percent to $6,845.00 per metric ton.

Terminal users can read more on this week’s market turmoil in these Bloomberg stories:

Map to the Underworld: $2 Trillion of Volatility Trades Here

How Does the World End? Stock Markets After a Psychological Peak

Good Is Bad, Bad Is Good and Trump Is Miffed at Stock Traders

End of a Bull Market, or Nowhere Near? Making the Case for Both

Credit Suisse Fund Liquidated, ETFs Halted as Short-Vol Bets Die

Source:
courtesy of BLOOMBERG

by Cormac Mullen

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