* ECB watching yield surge - Lane
* U.S. 10-yr yields ease after spike to one-year high
*
* Asian shares ex-
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
* Dollar lifted by rise in yields
* Gold hits 8-month low
By
MSCI's Emerging Markets equity index suffered its biggest daily drop in nearly 10 months and was 2.7% lower, while European shares opened in the red, with the STOXX 600 down 0.7%, recovering from heavier losses earlier in the session.
The MSCI world equity index, which tracks shares in 50 countries, was 0.9% lower and heading for its worst week in a month.
For the week the index is down more than 5%, its worst weekly showing since March last year when the coronavirus pandemic had sparked fears of a global recession.
"It is not the beginning of a correction in equities, more a
logical consolidation as price to earnings ratios were
excessive," said
"What is reassuring is that Q4 2020 earnings were good and earnings per share suprisingly good and that means down the road we should get back to growth."
Friday's carnage was triggered by a whiplash in bonds.
The scale of the sell-off prompted
The European Central Bank is monitoring the recent surge in
government bond borrowing costs but will not try to control the
yield curve, ECB chief economist
On Friday 10-year German government bond yields were down nearly 4 basis points at -0.267% and French and Austrian bonds were back in negative territory.
Yields on the 10-year Treasury note eased back to 1.4530% from a one-year high of 1.614% on Thursday.
"Bond yields could still go higher in the short term though
as bond selling begets more bond selling," said
"The longer this continues the greater the risk of a more severe correction in share markets if earnings upgrades struggle to keep up with the rise in bond yields."
Markets were hedging the risk of an earlier rate hike from the Federal Reserve, even though officials this week vowed any move was long in the future.
Fed fund futures are now almost fully priced for a
rise to 0.25% by
Even the thought of an eventual end to super-cheap money sent shivers through global stock markets, which have been regularly hitting record highs and stretching valuations.
"The fixed income rout is shifting into a more lethal phase
for risky assets," says
"The rise in yields has long been mostly seen as a story of improving growth expectations, if anything padding risky assets, but the overnight move notably included a steep lift in real rates and a bringing forward of Fed lift-off expectations."
EMERGING STRAINS
Overnight, the Dow fell 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest decline in almost four months for the tech-heavy index.
Tech darlings all suffered, with Apple Inc (AAPL), Tesla Inc (TSLA), Amazon.com Inc (AMZN), NVIDIA Corp (NVDA) and Microsoft Corp (MSFT) the biggest drags.
All of that elevated the importance of U.S. personal consumption data due later on Friday, which includes one of the Fed's favoured inflation measures.
Core inflation is actually expected to dip to 1.4% in January, which could help calm market angst, but any upside surprise would likely accelerate the bond rout.
The surge in Treasury yields caused ructions in emerging
markets, which feared the better returns on offer in
Currencies favoured for leveraged carry trades all suffered,
including the
The flows helped nudge the U.S. dollar up more broadly, with the dollar index rising to 90.390. It also gained on the low-yielding yen, briefly reaching the highest since September at 106.42. The euro eased a touch to $1.2144.
The jump in yields has tarnished gold, which offers no fixed
return, and dragged it down 0.1% to
Oil prices dropped on a higher dollar and expectations of more supply.
U.S. crude fell 1.5% to
(Additional reporting by
