Asian stocks extend losses on Ukraine fears and Fed jitters

An electronic stock quotation board is displayed in a conference room in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato

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HONG KONG, Jan 25 (Reuters) – Asian stocks and U.S. futures fell sharply on Tuesday as investors worried about the potential for military conflict in Ukraine and ahead of a key Federal Reserve meeting that could provide guidance on the timing and pace of rate hikes. .

Benchmarks slid, with most of the losses extending into afternoon trading. MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 1.43% to its lowest in a month. The Nikkei (.N225) closed down 1.66%, after hitting its lowest level since December 2020.

After a tumultuous session on Wall Street that saw a late rally and a higher close, US stock futures fell. Nasdaq futures (.NQc1) fell 1.3% and S&P500 e-minis lost 0.95%.

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But in Europe, it looked like selling pressure would ease with pan-regional Euro Stoxx 50 futures up 1.16% and FTSE futures up 0.76%. This follows a 3.8% drop in the Euro STOXX 600 (.STOXX) on Monday, its worst day in 18 months.

Tai Hui, chief market strategist for Asia at JP Morgan Asset Management, said investors faced a dilemma.

They worry about the outlook for monetary policy amid some growth stocks becoming more expensive, while growth prospects for 2022 are still decent and few assets offer the same long-term return prospects as stocks, he said.

“Geopolitical uncertainties in Europe this week and the potential impact on energy prices have further clouded the outlook,” Hui added.

NATO said on Monday it was putting its forces on standby and bolstering Eastern Europe with more ships and fighter jets, in what Russia has denounced as Western “hysteria” in response to its buildup of troops on the Ukrainian border. Read more

Elsewhere in Asia, Korea’s KOSPI (.KS11) fell 2.34% while Hong Kong stocks pared early losses but were still down 1.5%. Australia’s benchmark index (.AXJO) fell 2.68% to close at its lowest level in eight months, also hurt by high inflation on Tuesday morning which fueled fears of an upcoming rate hike.

Keeping traders on their toes, the Federal Reserve will begin its two-day meeting later on Tuesday, with some investors beginning to speculate on a surprise rate hike announcement, although that is still seen as a small possibility.

“The big question mark concerns the pace of the Fed’s hike cycle – as the central bank seeks to rein in rising inflation – and the impact on equity markets,” said Prashant Bhayani, chief executive. investments for Asia at BNP Paribas Wealth Management. in a note to customers.

Fed tightening puts pressure on some central banks in Asia to follow suit, which could hurt their stock markets, as happened in 2013 when the U.S. central bank began to cut its post-financial crisis stimulus measures.

Singapore’s central bank tightened monetary policy on Tuesday in an off-cycle move. Read more

“The good news is that, overall, current account balances in Asia are healthier compared to the 2013 crisis,” Bhayani added.

Benchmark US Treasuries were on the sidelines of some rate hike speculation. Benchmark 10-year bond yields fell slightly to 1.7618% after ending a choppy trading day on Monday near their starting point.

In the currency markets, jitters sent the dollar higher against most peers. The dollar index was at 96.010, hovering near a two-week high, and the risk-friendly Australian dollar briefly gained after the high inflation data. XRF

The Chinese yuan hit a more than 3.5-year high against the dollar, while its value against major trading partners hit its highest level since late 2015.

Oil prices also rose, further worrying stock market investors. U.S. crude rose 0.4% to $83.63 a barrel and Brent crude to $86.75, up 0.55%.

Gold held onto its recent gains as investors sought safety. Spot price was $1,842 an ounce, flat on the day but close to last week’s two-month high of $1,847.7.

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Reporting by Selena Li; Additional reporting by Alun John; Editing by Edwina Gibbs

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