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Shares skid as inflation shadow spooks bonds

Tuesday, February 06, 2018

SYDNEY - Asian share markets were set for a rough ride on Monday as fears of resurgent inflation battered bonds, toppled Wall Street from record highs and sparked speculation central banks globally might be forced to tighten more aggressively.

Futures for the Nikkei NKc1 implied an opening loss of around 1.6 per cent, while Australia's main index was already down 1.4 per cent.

E-Mini futures for the S&P 500 ESc1 shed 0.5 per cent in early trading, an unusually sharp move for Asian hours.

Investors were spooked by Friday's US payrolls report which showed wages growing at their fastest pace in more than 8-1/2 years and fuelling inflation expectations USIL5YF5Y=R.

Futures markets reacted by pricing in the risk of three, or even more, rate rises from the Federal Reserve this year.

"The earnings data fits too closely with the narrative of emerging wage pressures to be dismissed," said Deutsche Bank macro strategist Alan Ruskin.

"The data will add fuel to the debate on whether the Fed is falling behind the curve. It will raise the chances of the Fed median dots shifting up to 4 rate hikes for 2018," he added.

That would be negative for emerging markets and commodity currencies, said Mr Ruskin. Both the Australian and New Zealand dollars fell sharply in the wake of the jobs numbers, along with a range of Asian currencies.

It was also a major blow to government bond. Yields on 10-year US Treasury paper US10YT=RR were up at a four-year peak of 2.852 per cent, having jumped almost 7 basis points on Friday.

The two-year yield US2YT=RR was near a nine-year top at 2.153 per cent, tightening financial conditions and offering a more competitive return compared to equities.

Wall Street had already been flashing expensive on many historical measures and sold off in reaction. The Dow .DJI fell 2.54 per cent, the S&P 500 .SPX 2.12 per cent and the Nasdaq .IXIC1.96 per cent.

It was the Dow's biggest daily percentage loss in 20 months and the largest point fall since December 2008.

The three major indexes logged their biggest weekly losses in two years, after closing at record highs the previous week.

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Code Inward TTs Outward TTs
CAD 0.63200.6130
JPY 54.077951.0779
GBP 0.35650.3485
EUR 0.40700.3950
NZD 0.69240.6594
AUD 0.64120.6162
USD 0.50160.4846



Exchange Rate updated on 26th, February, 2018

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