Wall Street’s Selloff Quickly Spreads East as Nikkei, Shanghai Composite Fall Hard
Asian stocks posted huge losses at the start of Friday trading as a third round of Wall Street selloffs triggered fresh tumult in global markets.
Asian Markets Follow U.S. Stocks to the Basement
Equity markets were down at least 3% across Asia, with mainland China leading the decline. The Shanghai Shenzhen CSI 300 Index was down more than 4% early Friday, extending its monthly loss to 8%. The Shanghai Composite Index was also down 4%.
Japan’s 225-issue Nikkei was off more than 700 points, extending its four-week slide to a staggering 11%.
Meanwhile, Australia’s benchmark S&P/ASX 200 Index fell more than 1%.
Investors quickly sought shelter in safe havens such as the Japanese yen and Swiss franc, which rose sharply on Thursday. Both currencies were little changed versus the dollar on Friday.
Gold, long valued for its risk-off properties, snapped a three-day slide on Thursday, but failed to generate additional momentum. Bullion contracts for April delivery last traded at $1,320 a troy ounce.
Wall Street, the Center of Global Chaos
U.S. equities were once again the center of market turmoil as rate-hike jitters stoked a sharp rise in bond yields. In general, higher bond yields impact stocks negatively by increasing borrowing costs, which means companies have to pay more to finance important business processes. Higher yields also tend to dampen risk appetite, leading investors into assets deemed more stable.
For skeptics of the bull market, higher borrowing costs aren’t necessarily a bad thing. According to a recent report from S&P Global Ratings, the number of firms deemed to be “highly leveraged” is higher now than it was before the financial crisis. Although the end of cheap money may be bad for stocks, it could help slow the rise of borrowing that is leaving the economy dangerously exposed to risk.
However, the impact of higher interest rates is more complicated when we factor how much the economy actually depends on cheap money to survive. This conundrum was recently outed by Peter Schiff, the renown financial commentator and chief global strategist of Euro Pacific Capital:
“The economy is not good, right? And even if it was good, it ain’t gonna stay good. Because it’s not just the stock market that needs cheap money. It’s the economy. It’s this phony, bubble economy. That is its life-blood, its mother’s milk. You can’t take that away. But that is exactly what is in the process of happening.”
Schiff, a skeptic of cryptocurrency, believes gold prices will rise now that the stock market is finally cratering.
Gold prices have shown strong upward momentum in recent months, but have failed to breakout in convincing fashion.
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