 "Asian stocks falter as US Fed signals a December rate hike")
Asian stocks snapped a two-day rising streak and fell on Thursday after the US central bank hinted at a December interest rate hike, sending short-term US bond yields to four and a half-year highs and pushing the dollar broadly up.
A December US interest rate increase, ordinarily a sign of a healthy global economy, would now come at the worst possible time for export-oriented Asian countries which are grappling with the twin effects of a slowing China and shrinking global trade.
MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.4%, led by a 1% fall in Australian shares. While it has risen 12% since end-September, it is still down 10% so far this year.
"Emerging markets are facing some stiff headwinds particularly in the form of a historic China transition away from manufacturing-led growth and an entrenched slowdown in global trade," said Jeremy Lawson, senior international economist at Standard Life Investments.
In fresh signs that Asian countries were feeling the heat, central banks from Australia to Thailand voiced caution at their scheduled policy meetings this week while retail sales in Hong Kong fell for the seventh consecutive month.
In her first public comments since the Fed's meeting last week, Federal Reserve Chair Yellen said the US was ready for higher interest rates if upcoming economic data justified them.
"If the incoming information supports that expectation then our statement indicates that December would be a live possibility," she said.
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Her measured optimism was in direct contrast with the disappointing state of affairs for company earnings in Asia.
So far, September quarter net income for companies in Asia-ex Japan has missed consensus estimates by 6.5 percent, according to Morgan Stanley while Japan, a relatively bright spot so far, has also faltered.
Wall Street shares also slipped on Wednesday, with S&P 500 Index falling 0.4%. Futures were pointing to a weak start.
Tomoaki Shishido, fixed-income strategist at Nomura Securities, said: "Her comments confirmed that a rate hike in December is the Fed's base case scenario."
US economic data on Wednesday supported Yellen's guarded optimism, with private employers hiring steadily in October and a jump in new orders buoying activity in the services sector.
The US bond market reacted promptly, with the policy-sensitive US two-year notes yield rising to 0.850% in Asian trade on Thursday, its highest level since April 2011. It has gained nearly 30 basis points since early October. One basis point is a hundredth of a percentage point.
The near-term Federal fund futures contract fell to the lowest levels in a month or longer, suggesting the market is pricing more than a 50% chance of a rate hike at the Fed's next meeting on Dec. 15-16.
The spectre of higher US rates gave fresh legs to the dollar which has already risen more than 4 percent against a basket of its peers since mid-October, stifling demand for commodities and precious metals.
The euro shed 0.9% on Wednesday and hit a 3-1/2-month low of $1.08435. It last traded at $1.0862.
The yen also weakened to 121.42 to the dollar, its lowest since Aug. 31 and last stood at 121.58.
Gold slipped to a one-month low of $1,106.70 per ounce while silver dropped to as low as $15.06 per ounce, also a one-month low.
Oil prices erased their gains so far this week, falling 4 percent on Wednesday on tumbling gasoline prices and rising U.S. crude inventories.
Brent crude futures dropped to $48.91 per barrel from Tuesday's three-week high of $50.91.
Stagnant oil prices are hurting shares of oil-producing countries, with Saudi Arabian shares hitting a near three-year low on Wednesday before managing a small rebound.