Asian shares slump to one-year lows

Sydney — Asian shares hit one-year lows Monday as the risk of a wider conflict in the Middle East clouded sentiment in a week laden with data on US growth and inflation as well as earnings from some of the world’s largest tech companies.

Bonds were also under pressure as US 10-year treasury yields crept to within a whisker of 5.0%, pushing borrowing costs up across the globe and testing equity valuations.

Washington warned at the weekend of a significant risk to US interests in the Middle East as ally Israel pounded Gaza and clashes on its border with Lebanon intensified.

The European Central Bank and Bank of Canada also hold policy meetings and, while no hikes are expected, investors will be sensitive to guidance on futures moves.

The recent surge in bond yields has tightened monetary conditions without the central banks having to do anything, allowing the Federal Reserve to signal it is likely tostay on hold at its policy meeting next week.

Indeed, futures imply about a 70% chance the Fed has finished tightening for this cycle and are flirting with the chance of rate cuts from May 2024.

The jump in yields has challenged equity valuations and dragged most of the major indices lower last week, while the VIX “fear index” of US stock market volatility hit its highest since March.

On Monday, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5% to its lowest in almost a year. China’s blue chip index lost 0.6% to its weakest since early 2019.

Japan’s Nikkei eased 0.6%, as did South Korea’s market.

Eurostoxx 50 futures and FTSE futures were flat. Both S&P 500 futures and Nasdaq futures added 0.2%, underpinned by the hope a rush of earnings reports this week will provide some support.

Mega caps Microsoft, Alphabet, Amazon and Meta Platforms are all reporting. IBM and Intel are also on the docket.

Growth surge

Profits should be supported by the strength of consumer demand with figures on US GDP this week expected to show annualised growth of a heady 4.2% in the third quarter, and nominal annualised growth possibly as high as 7%.

“At the same time, last quarter’s modest rise in hours worked points to a strong productivity gain and surge in corporate profits,” wrote JPMorgan chief economist Bruce Kasman in a note.

“As corporate and household income share the benefits of this nominal activity surge, the underlying resilience of the US private sector is being reinforced.”

This US outperformance has underpinned the dollar, though the threat of Japanese intervention has capped it about ¥150.00 at least for the moment. The dollar was last trading at ¥149.93, just below the recent peak of ¥150.16.

Yields in Japan were also on the rise on speculation the Bank of Japan was discussing a further tweak to its yield curve control policy, which might be announced at its policy meeting on October 31.

The euro was flat at $1.0578, while the Swiss franc held firm at Sf0.8946 to the dollar having benefited from safe haven flows over the past couple of weeks.

Gold has likewise attracted a safety bid to stand at $1,973/oz, having hit its highest since May last week.

Oil prices gave back some ground in the absence of any disruption to supplies from the Middle East, at least for now.

Brent was last down 73c at $91.43 a barrel, while US crude eased 82c to $87.26.

Reuters