LONDON (Reuters) – Global stocks fell on Friday, with emerging market and Asia shares hardest hit, as a recent rout in global bond markets spooked investors amid fears the heavy losses suffered could trigger distressed selling in other assets.<\/p>\n
MSCI\u2019s Emerging Markets equity index suffered its biggest daily drop in nearly 10 months and was 3.1% lower, while European shares were deep in the red, with the STOXX 600 down 1.1%.<\/p>\n
The MSCI world equity index, which tracks shares in 50 countries, was 1.1% lower and heading for its worst week in a month.<\/p>\n
U.S. futures pointed to a marginally positive open for Wall Street, with S&P 500 e-minis up 0.1% and futures for the tech-heavy Nasdaq up 0.2%.<\/p>\n
Asia earlier saw the heaviest selling, with MSCI\u2019s broadest index of Asia-Pacific shares outside Japan sliding more than 3% to a one-month low, its steepest one-day percentage loss since May 2020.<\/p>\n
For the week, the index was down more than 5%, its worst weekly showing since March last year when the coronavirus pandemic had sparked fears of a global recession.<\/p>\n
\u201cIt is not the beginning of a correction in equities, more a logical consolidation as price-to-earnings ratios were excessive,\u201d said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.<\/p>\n
\u201cWhat is reassuring is that Q4 2020 earnings were good and earnings per share surprisingly good, and that means down the road we should get back to growth.\u201d<\/p>\n
Friday\u2019s carnage was triggered by a whiplash in bonds as rising inflation expectations triggered a selloff of safe-haven debt.<\/p> The scale of the recent sell-off prompted Australia\u2019s central bank to launch a surprise bond buying operation to try to staunch the bleeding.<\/p>\n European Central Bank executive board member Isabel Schnabel reiterated on Friday that changes in nominal interest rates had to be monitored closely.<\/p>\n Germany\u2019s benchmark yield was on course for its biggest monthly jump in three years.<\/p>\n Still, there were signs of respite. On Friday, 10-year German government bond yields were down 4 basis points at -0.248%. French and Austrian bonds were back in negative territory after both turning positive on Thursday for the first time since June.<\/p>\n Yields on the 10-year Treasury note eased back to 1.4633% from a one-year high of 1.614% on Thursday.<\/p>\n \u201cBond yields could still go higher in the short term, though, as bond selling begets more bond selling,\u201d said Shane Oliver, head of investment strategy at AMP.<\/p>\n \u201cThe longer this continues, the greater the risk of a more severe correction in share markets if earnings upgrades struggle to keep up with the rise in bond yields.\u201d<\/p>\n Markets were hedging the risk of an earlier rate hike from the Federal Reserve, even though officials this week vowed any move was long in the future.<\/p> Even the thought of an eventual end to super-cheap money sent shivers through global stock markets, which have been regularly hitting record highs and stretching valuations.<\/p>\n \u201cThe fixed income rout is shifting into a more lethal phase for risky assets,\u201d says Damien McColough, Westpac\u2019s head of rates strategy.<\/p>\n \u201cThe rise in yields has long been mostly seen as a story of improving growth expectations, if anything padding risky assets, but the overnight move notably included a steep lift in real rates and a bringing forward of Fed lift-off expectations.\u201d<\/p>\n Overnight, the Dow fell 1.75%, while the S&P 500 lost 2.45% and the Nasdaq 3.52%, the biggest decline in almost four months for the tech-heavy index.<\/p>\n All of that elevated the importance of U.S. personal consumption data due later on Friday, which includes one of the Fed\u2019s favoured inflation measures.<\/p>\n Core inflation is actually expected to dip to 1.4% in January, which could help calm market angst, but any upside surprise would likely accelerate the bond rout.<\/p>\n The surge in Treasury yields caused ructions in emerging markets, which feared the better returns on offer in the United States might attract funds away.<\/p>\n Currencies favoured for leveraged carry trades all suffered, including the Brazil real and Turkish lira, which slid for a fifth straight day, erasing all the year\u2019s gains.<\/p>\n The flows helped nudge the U.S. dollar up more broadly, with the dollar index rising to 90.568. It also gained on the low-yielding yen, briefly reaching the highest since September at 106.42. The euro slid 0.6%.<\/p>\n With riskier assets under pressure, bitcoin fell 5% to $44,713, set for its worst week since March.<\/p>\n The jump in yields has tarnished gold, which offers no fixed return, and dragged it down 0.5% to $1,763.00 per ounce, headed for its second straight monthly decline.<\/p>\n Oil prices dropped on a higher dollar and expectations of more supply.[O\/R]<\/p>\n U.S. crude fell 2% to $62.26 per barrel and Brent lost 1.4% to $65.89.<\/p>\nEMERGING STRAINS<\/h2>\n