IGI Logo

Asian shares plumbed a fresh 11-month trough on Friday as fears of a regional conflict in the Middle East intensified and as a relentless rise in long-term U.S. yields pressured valuations, while supply concerns lifted oil prices further.

The surge in the 10-year U.S. benchmark yield overnight to 5% has raised borrowing costs around the world. On Friday, the Bank of Japan intervened in the Japanese government bond (JGB) market as the 10-year JGB yield touched a decade high.

A much-watched speech overnight from Federal Reserve Chair Jerome Powell led to a choppy market response, although most investors leaned further into bets that the Fed will extend its rate pause in November.

MSCI's broadest index of Asia-Pacific shares outside Japan skidded 0.8% to a fresh low since November last year, bringing the weekly loss to a sizeable 3%. Tokyo's Nikkei fell 1% and was down 3.6% for the week.

China's blue chips fell 0.4%, while Hong Kong's Hang Seng index slumped 1%. China on Friday held its benchmark lending rates steady as the economy showed signs of stabilisation.

Sentiment is also fragile after Tesla shares dropped 9% after its quarterly results disappointed, with a warning about consumer demand from Elon Musk sparking a sell off in EV stocks.

On the geopolitical front, fears of a spreading regional conflict are rising after the U.S. intercepted three cruise missiles and several drones launched by the Iran-aligned Houthi movement from Yemen potentially toward Israel.

U.S. President Joe Biden in a speech on Thursday asked Americans to spend billions more dollars to help Israel fight Hamas, as an expected ground invasion with the aim of annihilating Hamas nears.

"World leaders continue to trek to the Middle East to – if nothing else — delay the onset of any further hostility," said Kyle Rodda, senior financial market analyst at capital.com.

"The markets are shuffling nervously as they await a move: gold and oil, as the most apparent indicators of sentiment towards the conflict, continue to rise."

Gold prices scaled a fresh two-month peak of $1982.09 per ounce, the highest since late July, as investors sought safe-haven assets in the turmoil.

Oil prices are headed for the second weekly gain on supply fears from an escalating regional conflict in the Middle East. U.S. crude jumped 1% to $90.33 per barrel and Brent was at $93.2, up 0.8% on the day.

Overnight, Fed chair Powell appeared to align himself with Fed colleagues who have recently said the bond market is now doing some of the central bank's work for it.

However, Powell walked a narrow line in his remarks, leaving open the possible need for more rate hikes because the economy had proved stronger than expected, but also noting emerging risks and a need to move with care.

The U.S. dollar was within a hair's breadth of the closely watched 150 yen level on Friday. It was up 0.1% against its peers at 106.34, not too far from an 11-month top of 107.34 hit in early this month.

The 10-year's yield has since steadied at 4.9620% in Asia, after hitting the 5.0% mark for the first since 2007, as investors grappled with U.S. economic resilience, concerns about the increase in U.S. debt issuance, and interest rates remaining high for longer.

It was up 35 basis points this week, its biggest weekly rise in over a decade.

Quincy Krosby, chief global strategist at LPL Financial, said the focus on supply has become a fixation for the treasury market, and the concern is that the U.S. deficit is poised to climb higher because of the larger defence funding needs for Washington.

"Now we’re talking about not just the Ukraine-Russia conflict, that front, but now you have another front, that’s in the Middle East that has to be satisfied... The U.S. is going to need more and more supply in terms of what we auction to pay for all of this."