SINGAPORE – Asian stocks hit a two-year low on Friday and were heading for a weekly loss, while the dollar was set for its third week of gains as a fresh slew of rate hikes around the world deepened worry about the outlook for global economic growth.
Although wagers on a 100 basis point hike from the US Federal Reserve later this month eased off a little overnight as Fed officials hosed down that possibility, bond markets remain priced for steep hikes to slam the brakes on output.
MSCI's index of Asia-Pacific shares outside Japan fell 0.5 percent in early trade to a two-year low.
Japan's Nikkei edged 0.1 percent lower. The US dollar stood near two-decade highs on the euro and yen, having forced the euro below $1 for the first time since 2002 this week.
Overnight, Wall Street indexes fell after weaker-than-expected earnings from JPMorgan Chase & Co and Morgan Stanley fanned fears of a sharp economic downturn.
The S&P 500 finished 0.3 percent lower but futures were up 0.35 percent in Asia after Fed Governor Christopher Waller and St. Louis Fed President James Bullard poured some cold water on talk of a 100 bp rate hikes later in July.
"Markets may have gotten ahead of themselves," Waller said at a summit in Idaho. Bullard also told Japan's Nikkei newspaper that a 75 bp hike "has a lot of virtue to it."
Futures imply about a 30 percent chance of a 100 bp hike and see the benchmark US interest rate reaching about 3.6 percent by March next year before being cut back to 3 percent by late 2023.
This week the Bank of Canada surprised markets with a 100 bp hike, central banks in South Korea and New Zealand announced 50 bp hikes and in Singapore and the Philippines authorities tightened policy out-of-cycle to tamp down on inflation.
US retail sales data will also be closely watched data point on Friday.
Weakness will further worry investors who think this week's white-hot inflation figure and subsequent Thursday data showing a strong rise in producer prices point to an unleashing of steep rate rises on a softening economy.
Short-end US Treasuries held steady overnight, but the two-year yield , at 3.1217 percent, is about 17 basis points higher than the benchmark 10-year yield , an unusual inversion of the yield curve that often points to recession.
"That inversion, I think, has quite a long way to go because we haven't really properly priced in that recession yet," said ING economist Rob Carnell, who also warned equities were at risk as fast-rising producer costs point to margin squeezes.
In currency markets the US dollar is king. The euro fell as low as $0.9952 overnight and has slid 1.5 percent for the week. It last steadied at $1.0030. The yen is hurtling toward 140 per dollar, and last bought 138.85.
"Not only has the greenback been supported by an almost continual ratcheting higher of Fed hawkishness over the past year, but the USD is picking up support from safe-haven flows."
Brent crude futures held at $99.42 a barrel and gold sat at $1,711 an ounce, just above a one-year low made overnight.