Global equity sales ramp up as reflation trade crumbles

Global stocks sank as a sell-off triggered by a hawkish shift in the US central bank’s stance on inflation intensified in Asia on Monday.

Japan’s Topix index fell 2.6% at the start of trading in the region while Australia’s S & P / ASX 200 fell 1.9%. Hong Kong’s Hang Seng Index and South Korea’s Kospi Index both fell 1.1%. China’s CSI 300 for stocks listed in Shanghai and Shenzhen slipped 0.2%.

These falls followed the worst week for the Wall Street S&P 500 benchmark index in nearly four months. The sale was prompted by comments from Federal Reserve Chairman Jay Powell on Wednesday that reported the central bank could raise rates to bring inflation under control sooner than investors previously thought, rather than maintaining a supportive policy indefinitely.

The sudden change has prompted investors to shy away from preferred stocks in the so-called ‘reflation trade’, or those that benefit from higher inflation, which has dominated the markets since the launch of the Covid-19 vaccination campaigns at the end of last year.

S&P 500 futures were down 0.3% in Asian trading on Monday, while those on London’s FTSE 100 were down 0.5%. The S&P 500 slipped 1.3% on Friday.

Market sentiment was also affected by comments from James Bullard, chairman of the St Louis Fed, who suggested that the United States could raise rates as early as the end of 2022 if inflation is higher than expected. The Fed also signaled last week that it would soon start discussing when to reduce its monthly bond purchases by $ 120 billion.

“It looks like a market that got too invested in the Fed’s previous story, which it maybe took way too literally,” said Robert Carnell, head of Asia research. Pacific at ING. “Central banks do not seem able to control the shock of reality that hits the markets when a more reasonable version of future events is revealed to them.”

The 10-year US Treasury yield rose 0.03 percentage points to 1.408 percent on Monday. Bond prices fall when yields rise.

Commodity prices have stabilized after falling last week. Brent crude, the international benchmark for oil, rose 0.9% to $ 74.20 a barrel. US marker West Texas Intermediate rose 1% to $ 72.33.

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