Global equities stumbled on Friday after the latest drop in US government bond prices pulled down Wall Street stocks.
In Europe, the region-wide Stoxx 600 index fell 0.4 per cent and Germany’s Xetra Dax dropped 0.35 per cent, while the UK’s FTSE 100 lost 0.5 per cent.
In Asia, China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 2.6 per cent, while Hong Kong’s Hang Seng dropped 1.4 per cent. South Korea’s Kospi index fell 0.8 per cent and Australia’s S&P/ASX 200 shed 0.6 per cent.
The falls in global equities came after Wall Street’s technology-focused Nasdaq Composite stock index tumbled 3 per cent on Thursday. The broader S&P 500 dropped 1.5 per cent, coming off a record-high closing level from Wednesday.
“Yesterday’s session was shocking,” said Bastien Drut, senior strategist at CPR Asset Management. “After such a shocking performance yesterday, it’s not surprising that you have some contagion.”
Those declines were spurred by increasing US Treasury yields, to which borrowing costs in many financial markets are benchmarked. Rising yields, which reflect falling demand for bonds, have forced investors to reprice the value of high-growth shares to reflect changes in interest-rate expectations.
The yield on the 10-year US Treasury rose on Thursday to 1.75 per cent, crossing above 1.7 per cent for the first time since Covid-19 sparked market tumult in early 2020.
“This is spilling into wider markets,” said Robert Carnell, head of Asia-Pacific research at ING, of the sell-off in Treasuries, pointing to falls in prices for gold and oil.
The yield on the 10-year Treasury edged 0.05 percentage points lower in European trading on Friday to 1.677 per cent.
In Japan, the benchmark Nikkei 225 fell 1.4 per cent while the Topix, another share index, gained 0.2 per cent. The moves came as the central bank scrapped its pledge to buy an average of ¥6tn ($55.2bn) a year in equities following its biggest policy review since 2016.
The divergence between the two indices followed the Bank of Japan’s announcement that it would concentrate its exchange traded fund purchases solely on those that track the Topix. The Nikkei 225 was led lower by Fast Retailing, the parent of clothing chain Uniqlo, which has a large weighting in that index.
Stock futures for the S&P 500 rose 0.5 per cent during European trading on Friday.
Investors are also keeping an eye on the first high-level meeting between US and Chinese officials since US President Joe Biden took office, which began in Alaska with fiery exchanges between the two powers.
Oil prices rose after tumbling on Thursday on concerns over flagging demand in China and the US. Brent crude, the international benchmark, gained 0.1 per cent to $63.35 a barrel after dropping 7.6 per cent overnight. West Texas Intermediate added 0.3 per cent to $60.22 a barrel after closing down 7.1 per cent on Thursday, the US benchmark’s biggest one-day fall in six months.
Additional reporting by Leo Lewis in Tokyo