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BEIJING: Asian shares wobbled on Friday and the Chinese yuan slid as investors fretted about an increasingly aggressive rate-hike outlook for the United States, and the fallout for the global economy from lockdowns in China.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7% and touched a five-week low, weighed down by a 1.6% loss for Australia’s resource-heavy index and a 0.8% drop in South Korean shares.

Japan’s Nikkei declined 1.6%.

The European open is also looking weak, with EuroSTOXX 50 futures down 1.6% and FTSE futures down 1.2%. S&P 500 futures are down 0.1%.

Chinese stocks staged a recovery in volatile trade, with the mainland’s bluechips reversing early loses to gain 1% on hopes for policy support, but the currency remains under pressure as lockdowns in Shanghai take a bite out of growth.

The yuan hit a seven-month low and is on course for its worst week since 2019.

Analysts at HSBC expect a comprehensive easing package on all fronts, both monetary and fiscal, from China is needed, including loosening measures in the property sector, which has been hit hard by restrictions on access to credit.

“The next key focus will be the China PMI data next week,“ said Jingyang Chen, a currency analyst at HSBC in Hong Kong, where a negative surprise could drive the yuan lower still.

“High frequency data in April has suggested severe supply chain disruptions caused by the virus containment measures in the Yangtze River Delta region, which accounts for almost a quarter of China’s GDP.”

Tech shares in Hong Kong were supported by signs of progress in resolving audit issues that have called into question the U.S. listings of Chinese firms, but rates worries kept most other asset classes on edge.

U.S. RATE HIKES

On Thursday, U.S. Federal Reserve Chairman Jerome Powell said a half-point interest rate increase will be “on the table” when the Fed meets in May, adding it would be appropriate to “be moving a little more quickly.”

His remarks effectively confirmed market expectations of at least another half-percentage-point rate hike from the Fed next month, and Nomura now expects 75 basis point hikes at its June and July meetings, which would be the biggest of that size since 1994.

Selling pressure persisted in bond markets, driving five-year U.S. Treasury yields to 3.04%, the highest late 2018, and two-year yields to a new high of 2.7620%.

Elsewhere, markets were still reeling from comments by European Central Bank officials that the central bank might start hiking euro zone rates as early as July. German two-year yields hit an eight-year high on Thursday.

In currency markets the yen steadied on talk of joint Japan-U.S. FX intervention, while the euro has given up Thursday’s bounce as nerves about Sunday’s French presidential election creep in.

The yen last traded at 127.82 per dollar and the euro at $1.0848. Dollar gains drove the Australian and New Zealand dollars to multi-week lows.

Oil prices fell on Friday, burdened by the prospect of interest rate hikes, weaker global growth and COVID-19 lockdowns in China hurting demand.

Brent crude futures were down $1.30, or 1.2%, at $107.03 a barrel, while U.S. West Texas Intermediate (WTI) crude futures declined $1.27, or 1.2%, to $102.52.

The looming U.S. rate hikes have weighed on gold. Spot gold was last down 0.02% to $1,951.32 per ounce. Wall Street indexes fell on Thursday, with the S&P 500 down 1.5% and the Nasdaq down 2%. – Reuters

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