Asian stocks stagnate, dollar hits pound and yen

SINGAPORE, Oct 12 (Reuters) – Asian stocks slumped to their lowest level in two years on Wednesday after a strengthening dollar, instability in the British bond market and upcoming U.S. inflation data prompted a crazy session on Wall Street and increased volatility for investors.

The pound languished at a two-week low after Bank of England Governor Andrew Bailey reiterated on Tuesday that the central bank would end its emergency bond-buying program this week and asked pension fund managers to complete the rebalancing of their positions in the framework.

“In the UK situation – they have high inflation, and under the Kwarteng fiscal policy package they were actually going to raise it even more,” said Damien Boey, chief macroeconomic strategist at Barrenjoey in Sydney. “So you’re actually forcing the Bank of England to do more work than it needs to – the risk premium in the gilt market is going up a lot.”

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In Japan, the raging dollar rose above 146 yen for the first time since 1998, prompting authorities in Tokyo to pledge to take necessary action in the foreign exchange market if necessary. The Nikkei stock average (.N225) fell 0.18%.

MSCI’s broadest Asia-Pacific ex-Japan equity index (.MIAPJ0000PUS) fell 0.87%, while Seoul’s KOSPI index (.KS11) fell 0.41% and the Australian index resource-rich (.AXJO) increased by 0.05%.

China’s CSI300 index (.CSI300) fell 0.96% in early trading and Hong Kong’s Hang Seng index fell 1.94%.

Britain’s financial turmoil combined with a surge in US dollar strength that propelled the pound to a two-week low of 1.0949, while the risk-sensitive Australian dollar fell to $0.6247, the lowest since April 2020.

Nor was there any good news elsewhere.

The International Monetary Fund has lowered its global growth forecast for 2023 from 2.9% to 2.7%, warning that inflation pressures, war-induced energy and food crises and rising interest rates could tip the world into recession and financial market instability.

The BOE has warned Britain’s pension funds and other investors to put their houses in order by Friday when it will end a massive bond-buying program aimed at calming mountain swings Russians seen by gilts and sterling in recent days.

Warnings ahead of US inflation data on Wednesday and Thursday that are expected to keep the Fed on an aggressive rate hike path sent stocks on Wall Street tumbling.

Overnight, the S&P 500 and Nasdaq Composite fell 0.65% and 1.10%, respectively, although the Dow Jones Industrial Average (.DJI) managed to close up 0.12%.

The benchmark 10-year bond was at 3.9511%, after opening at 3.9510%.

Brent crude futures fell 51 cents, or 0.5%, to $93.78 a barrel at 00:33 GMT. U.S. West Texas Intermediate crude was at $88.66 a barrel, down 69 cents, or 0.8%. It was the third straight drop in prices as investors worried about falling fuel demand and tightening COVID-19 restrictions in China.

Spot gold fell 0.2% to $1,661.5 an ounce.

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Additional reporting by Tom Westbrook; Editing by Lincoln Feast and Sam Holmes

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