Goldman Sachs headquarters in New York on Tuesday, 4 January 2022. 
Equity benchmarks for Japan, Hong Kong and South Korea all fell, while mainland Chinese stocks fluctuated. The broad-based pressure weighed on a gauge of the region’s equities, although the drop was less intense than the two prior sessions as the dollar weakened.
China is again in focus, with growing signs that policymakers are trying to limit the selloff. The People’s Bank of China delivered its strongest ever pushback against a weaker yuan via its daily reference rate, helping to support the currency. This followed news Chinese authorities had told state-owned banks to step up support for the yuan.
State-owned developers warned of widespread losses, adding to concerns that the housing crisis is expanding from the private sector to companies with government backing. There are signs of contagion, with Australian miners on track for their worst week in five months, given how reliant they are on Chinese demand.
“We have a lot of uncertainty about the Chinese economy,” Hebe Chen, an analyst for IG Markets, said on Bloomberg Television. “The market is now standing at a crossroads about whether or not we can continue to talk about the Chinese recovery story or should we shift the narrative to China slowing down or even entering a recession.”
Markets are seeing a brief respite on Friday from this week’s relentless gains in Treasury yields and the dollar. Yields on the bonds inched lower across the curve after those on the 10-year note on Thursday came close to the October peak, which was the highest since 2007. The Bloomberg dollar index inched lower.
This week’s broad risk-off follows the publication on Wednesday of minutes from the last Federal Reserve meeting that suggested officials are considering tighter policy, slamming hopes that the central bank was done raising rates.
US futures were broadly flat after the Nasdaq 100 notched its worst three-day slide since February. The S&P 500 fell 0.8%, also its third daily decline.
Read More: Global Yields Reach 15-Year Highs as Rate-Hike Worries Build
The slump in stocks comes as investors must decide whether to roll over about $2.2 trillion of longer-dated options contracts tied to stocks and indexes that are scheduled to mature on Friday. That has led Goldman Sachs Group Inc. to warn that the activity is fueling the recent market selloff.
Tom Garretson, a senior portfolio strategist with RBC Wealth Management, said so far the stock slump has been more muted than during similar eras of elevated real rates.
“Tech stocks — and certainly equities broadly — are feeling the weight of rising real yields, but thus far not to the extent that we have seen during past episodes of rising yields,” Garretson said in an interview. “During past periods over the last three years of similar rises in real yields, we have seen tech pull back by about 7% to 15%.”
Data from before the US market opened showed the labor market remains healthy, doing little to change the narrative that more tightening from Fed officials may be in store.
“This week’s data hasn’t given them any reason to let their guard down,” said Mike Loewengart at Morgan Stanley Global Investment Office. “With housing starts, retail sales, and jobless claims all reinforcing the picture of a robust economy, another rate hike can’t be ruled out, even if the Fed remains on hold next month.”
Wall Street’s fear gauge, the Cboe Volatility Index or VIX, closed at 17.89, its highest level since May. The VIX hasn’t reached above 30 — a level considered a sign of heightened volatility — since a series of bank failures rocked the market in March.
Investors will soon be turning to next week’s gathering of policymakers at Jackson Hole in Wyoming to gauge Fed sentiment.
The yen gained after Japan’s consumer inflation slowed, offering support for the Bank of Japan’s stimulative policy stance.
Bitcoin was hit by the risk-off mood, extending this week’s decline early on Friday. Elon Musk’s SpaceX has sold Bitcoin, according to The Wall Street Journal, adding to the selling pressure.
Crude was set to notch its first weekly drop — ending a run of seven advances — as traders weighed signs of tightening supplies against concerns about the Chinese economy and US monetary policy. DM