Japan’s Nikkei fell 3.6%, dropping below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.4%, and Chinese blue chips fell 0.7%
Asian stocks fell on Monday as surprise hawkish shift by the U.S. Federal Reserve last week reduced the allure of riskier assets, while the Treasury yield curve flattened further with 30-year yields falling below 2%.
Japan’s Nikkei fell 3.6%, dropping below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.4%. Chinese blue chips declined 0.7%.
European stocks looked set to drop, with EuroSTOXX 50 futures 1% lower and FTSE futures off 0.7%.
Benchmark 10-year U.S. Treasury yields dropped to the lowest levels since Feb. 24 at 1.3540%, while those on 30-year bonds declined as low as 1.9290% for the first time since Feb. 11.
The yield curve – measured by the spread between two- and 30-year yields – was the flattest since late January as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.
The U.S. dollar hovered near the 10-week high touched on Friday versus major peers, following its biggest weekly advance in more than a year.
The Fed’s pivot to begin the tightening discussion caught most by surprise, but markets began discounting this inevitable process months ago in our view, Morgan Stanley analysts wrote in a report.
It’s exactly what the mid-cycle transition is all about, and fits nicely with our narrative for choppier equity markets and a 10-20% correction for the broader indices this year, they wrote.
The MSCI world equity index, which tracks shares in 45 nations, extended its retreat from a record intraday high reached Tuesday, shedding another 0.3% on Monday.
In Europe news, European Central Bank (ECB) President Christine Lagarde is due to speak before the European Parliament on Monday.
The euro dropped from $1.21457 touched last Tuesday to $1.1863 on Monday – its lowest level since April 6.
Sterling also dropped as low as $1.37865 for the first time since April 16.
Commodity-linked currencies also took a beating, with the Australian dollar hovering near a six-month low at $0.7492.
Crypto currencies also dropped amid a stronger greenback, with bitcoin declining 4.2% to nearly $34,112, while ether shed 5.7% to nearly $2,115.
