Stocks extend sell-off, dollar firm on global growth fears

A global stocks sell-off extended into the Asia morning on Wednesday, as growing fears about the global economy forced investors to dump riskier assets in favour of safe havens such as the US dollar and government bonds.

Financial markets, already anxious about the prospects for aggressive US interest rate hikes, a spike in global inflation and the Ukraine war, were rattled this week over slowdown fears in China as Beijing stuck firm to stringent Covid-19 lockdowns.

News of Russia cutting gas supplies to Eastern Europe added to the sombre mood, sending the MSCI world equity index .MIWD00000PUS slumping to a 13-month low.

There was little let-up in the selling in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down 1.1% to its lowest level since March 15. Tokyo's Nikkei .N225 and Seoul's KOSPI index .KS11 were also down sharply by 1.8% and 1.19% respectively.

Chinese blue chips .CSI300 were flat after falling to their lowest in two years on Tuesday and the Hong Kong benchmark .HSI fell 0.72%. Australian shares .AJXO were also down 0.73%.

The catalysts for the latest declines "were yet more bellicose words from Russia over Ukraine, and the announcement that Bulgaria and Poland would see their gas supplies from Russia shut off from today," ING said in a note.

Russia, which has been demanding payments for its gas in roubles as sanctions over its invasion of Ukraine bite, said it will halt supplies to Poland and Bulgaria from Wednesday. 

The move, viewed as a major escalation, sent oil and gas prices higher. Brent crude LCOc1 futures rose $1.11, or 1.1%, to $106.10 a barrel by 0019 GMT. US West Texas Intermediate crude CLc1 futures rose 84 cents, or 0.8%, to $102.54 a barrel. 

China's central bank said this week it would support its economy as worries grew that Beijing's insistence on continuing with a "zero-Covid" policy would harm domestic and global growth while further intensifying supply snags. 

The dollar =USD, which hit a two-year high this week, rallied further against a basket of rival currencies to 102.34, as did gold, which edged higher to settle at $1,903 an ounce.

Safety flows have also supported the yen JPY=EBS, which lifted away from recent lows to a one-week high of 126.96 and overnight enjoyed its best day on the struggling British pound in more than two years GBPJPY=.

Analysts say markets worry that an expected streak of rate increases by the Federal Reserve could hurt growth just when many economies have started to recover from the pandemic-driven slumps.

Investors have also been fretting about volatile commodity prices in the wake of the Ukraine war, with the International Monetary Fund warning this week about stagflationary risks in Asia.

The overnight sell-off on Wall Street underlined investor anxiety about the hit to earnings, with the Nasdaq down 4%, its lowest since late 2020. After market close, Google's parent Alphabet Inc GOOGL.O reported its first quarterly revenue miss of the pandemic and was down about 3%. Microsoft Corp MSFT.O fell 4% ahead of its results but recovered once it forecast double-digit revenue growth next year. 

Nasdaq futures NQcv1 were down 0.28%.

"I think with where the market is right now, in this indiscriminate selling and fear phase, I think you've got more potential for downside risk than you have for an upside surprise," said Ross Mayfield, an investment strategist at Baird in Louisville, Kentucky.

US treasury yields also slipped on safety-bid, with the yield on benchmark 10-year Treasury notes US10YT=RR down 5.5 basis points to 2.772%, while yields on three-month bills to 30-year bonds were all lower on the day.