The panic that hit the equity and sovereign debt markets in the euro area, in the wake of the announcements from the ECB by Christine Lagarde, and subsequently Wall Street, bent by the US inflation data, infects Asian stock exchanges.
An hour before the end of the trading day on the Tokyo Stock Exchange, the Nikkei 225 Index plummeted around 3%. The Hong Kong stock exchange also peaked by 3%, and Seoul, which slipped by more than -3%. Sell off on the yen, with the dollar-yen ratio jumping to over 135.
The Japanese currency is suffering from the boom in US Treasury rates, with ten-year yields approaching 3.2% and two-year yields, rocketing up to 3.065%, a record since 2008, after the publication of the data relating to the US inflation measured by the consumer price index which underlined that in May the flare-up in prices did not reach a peak. A factor that leads the markets to price an even more aggressive Fed on the rates front, at the meeting of the FOMC – the monetary policy arm of the Federal Reserve – expected for tomorrow 13 June, which will end with the announcement on rates on Wednesday 14 June. Expectations are for a new monetary tightening, after that of early May which brought US rates into the range between 0.75% and 1%. In the minutes relating to the FOMC meeting, it later emerged that “most of the participants noted that further rate hikes of 50 basis points would be appropriate in the next two meetings”. But after last Friday’s inflation figure, which indicated an 8.6% rate hike after + 8.3% in April, there are also some who are starting to bet on a 75bp squeeze. .