* Markets take Fed minutes as affirming Sept start to
* Asian currencies, shares likely to come under heavy
* US Yields jump to 2-year highs, near major psychological
By Wayne Cole
SYDNEY, Aug 22 Asian markets look set for a
rough ride on Thursday after minutes from the Federal Reserve
July policy meeting were taken as affirming the outlook for a
near-term tapering in stimulus, sending Treasury yields to
Wall Street stocks sold off, the U.S. dollar surged and
borrowing costs rose globally. All of which is bad news for
emerging markets that have come to rely on cheap dollars to
underpin domestic demand and fund current account shortfalls.
South America provided a taste of what was likely to come
for Asia, with the Brazilian real tumbling 2.5 percent and the
Mexican peso 2.2 percent. The turmoil was enough to make
Brazil's central bank chief cancel a trip to the United States.
Dealers said the violence of the market reaction was partly
because some investors had hoped the Fed would lean against the
recent climb in Treasury yields. Instead the minutes showed most
Fed members felt the outlook for tapering had not changed.
"That does not smack of a Fed going out of its way to fight
the back-up in bond yields at the time, which is partly why
Treasuries have sold off," said Alan Ruskin, global head of
foreign exchange strategy at Deutsche Bank in New York.
"Most other asset markets are taking their lead from
Treasuries, and the minutes provide no obvious relief for the
stresses in the emerging market world."
Markets from India to Indonesia have already been under
intense pressure from expectations Western investors will
repatriate funds now that yields at home are rising.
A confused policy response by some governments has only
added to the sense of foreboding and sent funds fleeing the
Traders expected currencies and stocks in India, Indonesia
and Thailand would be under particular pressure on Thursday,
likely requiring more official action to support assets.
Investors also face an added hurdle in HSBC China Flash PMI
for August due later on Thursday. A weak reading would give
markets another excuse to push the currencies and shares lower.
Doing the most damage was a jump in 10-year U.S. Treasury
yields to almost 2.9 percent, a level last seen in
July 2011. This is a major chart level and a break could see the
market quickly test 3 percent, which itself is a huge
Treasury yields tend to set the benchmark for borrowing
costs across the globe, so the rise will make it more difficult
for indebted countries and companies to pay their bills.
That was not taken well by stocks, with the Dow Jones
industrial average down 0.7 percent and the Standard &
Poor's 500 Index off 0.58 percent.
MSCI's all-country stock index shed 0.85
percent, while the pan-European FTSEurofirst 300 index
closed down 0.6 percent.
The prospect of higher returns gave the U.S. dollar a lift
across the board. The euro was back at $1.3350, from a
high of $1.3452 on Wednesday.
The dollar index, which measures the greenback versus a
basket of six currencies, rose to 81.377, from a low of
80.896. The dollar's gains on the yen were more restrained at
97.77, in part because dealers expected the Japanese
currency would get a lift from safe-haven flows.
Commodity prices were generally lower. Copper futures
lost 1 percent to $7,239.85, while gold backtracked to
$1,364.24 an ounce.
Brent crude oil fell below $110 a barrel on reports some
Libyan oil exports might soon resume and on news the Seaway
crude oil pipeline had shut, halting shipments from the U.S.
Midwest to the Gulf Coast.
Brent futures for October were off 42 cents at
$109.73 a barrel. U.S. October oil fell $1.26 to settle
at $103.85 a barrel.