Stocks Slide, Dollar Climbs as Taper and Virus Fears Combine

U.S. One dollar banknotes are seen in front of displayed stock graph in this illustration taken, February 8, 2021. REUTERS/Dado Ruvic/Illustration/File Photo

Asian stocks slumped to their lowest levels this year and the dollar hit 10-month highs on Thursday as a double-whammy of worries about global growth and an end to central bank support drove nervous investors toward safe assets.

Commodities were also sold with oil down for a sixth straight session and at three-month lows, while growth bellwether copper fell to a two-month trough.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped 1.63% to its lowest level since December. S&P 500 futures fell 0.4% and Euro STOXX 50 futures were off 0.86% towards the end of Asia day.

Japan's Nikkei share average (.N225) fell 1.1% to its lowest since early January pulled down by Toyota Motor (7203.T) whose shares tumbled on news that it will slash its output by 40% next month due to a chip shortage.

"You can't find a bull out there," said Kay Van-Petersen, a global macro strategist at Saxo Capital Markets in Singapore.

He said "an accumulation of things," from the spread of the Delta virus variant to a tech crackdown in China and the impression from Federal Reserve minutes that a slowdown in asset purchases looms was enough to hit fragile sentiment in Asia.

The dollar rose 0.35% to $1.167 per euro, hitting its highest since November 2020 along with the dollar index as the U.S. currency scaled 2021 peaks on the Australian and New Zealand dollars.

Selling pressure in stock markets extended from Chinese tech shares to semiconductors and miners. The route even led to Taiwan's Finance Ministry calling state-owned banks to suggest they buy an "appropriate" amount of stocks, Reuters reported, citing five people familiar with the matter.

The Taiwan benchmark (.TWII) closed down 2.7% at a three-month trough, with chip giant TSMC (2330.TW) down 2.6%.

The Hang Seng tech index (.HSTECH) fell 2% to its lowest level since its launch last year, with Alibaba's Hong Kong shares (9988.HK) falling 4.8% to a record low. The broader Hang Seng (.HSI) dropped 1.6%.

 

Further south, tumbling iron ore prices pushed shares in global miners BHP (BHP.AX) and Rio Tinto (RIO.AX) to their lowest in months, even after BHP reported its best profit in almost a decade on Tuesday.

"The spreading Delta variant is pushing down economic growth," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

"But on the other hand, in the grand scheme of things, the Federal Reserve and some other central banks are starting to remove stimulus they began to deal with the pandemic ... so the balance is tilting in the direction of risk-aversion."

The CBOE Volatility index (.VIX), also known as Wall Street's fear gauge, jumped 3.66 points to its highest level in about a month overnight and the S&P 500 index (.SPX) fell 1% to a two-week low.

Minutes from the Fed's July meeting published on Wednesday showed officials expected they could ease stimulus this year, though there was division over recovery in the labour market and the level of risk posed by coronavirus cases rising again.

"The minutes show a Fed that is pretty split on most things, but recognizes that we are getting much closer to the point of tapering," ING analysts said in a note.

Focus now shifts to the Fed's annual research conference in Jackson Hole, Wyoming, next week for any clues about the central bank's next steps.

U.S. Treasury yields held near recent lows in Asia. Benchmark 10-year notes were last at 1.2430% with growth wobbles driving demand for bonds.

Oil extended losses into a sixth day on Thursday, falling to three-month lows. ANZ analysts said rising U.S. inventories had fueled fears of weaker demand amid a spike in COVID-19 cases worldwide.

Brent crude was last down 1.5% to 67.15 a barrel, U.S. crude lost 1.94% to trade at $64.21 a barrel.

The stronger dollar also dragged on gold, with the spot price dropping 0.65% to $1776.29.


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