Asian stocks skidded on Friday as rising US Treasury yields again rattled equity investors while hoisting the dollar to a three-month high, which in turn dragged the Japanese yen to an eight-month trough.
Energy markets were not spared the volatility either, with oil prices surging more than 5% overnight to their highest in over a year, after OPEC and its allies agreed to keep production unchanged into April as demand recovery from the coronavirus pandemic was still fragile.
In early Friday trade, Australian stocks (.AXJO) shed 1%, Japan's Nikkei share average (.N225) lost 0.7%, shares in Seoul (.KS11) fell 0.24% and E-Mini S&P futures were a touch lower at 0.04%.
US stocks had dropped sharply on Thursday after Federal Reserve Chair Jerome Powell disappointed some investors by not indicating that the Fed might step up purchases of long-term bonds to hold down longer-term interest rates.
The tech-heavy Nasdaq Composite (.IXIC) tumbled 2.1%, taking it down about 10% from its record closing high on Feb. 12 and putting it in correction territory.
Even though Powell made it clear that the Fed was not close to changing its ultra-loose monetary policy stance anytime soon, some analysts still worried rising Treasury yields could herald higher borrowing costs, thereby limiting the fragile US economic recovery.
"The US dollar has gained 0.8%, and there you see the holy trinity of market fears – rising real rates, increased expectations of rate hikes, and a stronger US dollar," said Chris Weston, the head of Research at Pepperstone Markets Ltd, a foreign exchange broker, in Australia.
Bond investors with a bearish view of Treasuries took heart in Powell's remarks and sold the notes. The yield on 10-year Treasuries climbed above 1.5% to as high as 1.5727%, but still below a one-year high of 1.614% struck last week.
The yield curve, a measure of economic expectations, steepened on rising yields, with the gap between two- and 10-year yields widening by another 6.3 basis points overnight.
Rising Treasury yields bolstered demand for the dollar. The dollar index jumped 0.61% against a basket of major currencies to 91.651, within sight of a three-month high of 91.663.
A stronger dollar hobbled the yen. By early Friday, the yen was soft at 107.95, a level not seen since July 1.
The euro was also tripped by a firmer dollar, with the common currency sluggish at $1.19665.
Climbing yields and dollar strength pummeled gold prices, which sank to a nine-month low as investors sold the precious metal to reduce the opportunity cost of holding the non-yielding asset.
Spot gold slid another 0.2% early Friday to stand at $1,694.0600 per ounce, trading below $1,700 for the first time since June 2020.
Oil prices, on the other hand, extended gains on early Friday after zooming higher overnight.
US crude futures climbed 0.85% to $64.38 a barrel, after scaling its January 2020 peak of $64.86 overnight. Analysts said OPEC's decision to not increase output in April as many had expected showed what it is prepared to do to deplete an inventory overhang and keep prices elevated.
In the cryptocurrency market, bitcoin narrowed overnight losses and was down 3.8% at $48,473 early Friday.