SINGAPORE -Asian stocks wallowed at two-year lows on Wednesday, after a strengthening dollar, instability in the U.K. bond market, and upcoming U.S. inflation data spelled a wild session on Wall Street and further volatility for investors.
"In the UK situation - they have inflation which is high, and under the Kwarteng fiscal policy package they were actually going to drive that even higher," said Damien Boey, chief macro strategist at Barrenjoey in Sydney."So you're actually forcing the bank of England to do more work than it needs to - the risk premium in the gilts market goes up quite a lot."
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.87 per cent, while Seoul's KOSPI index fell 0.41 per cent and Australia's resources-heavy index was up 0.05 per cent. The British financial turmoil combined with a burst of U.S. dollar strength that sent the sterling to a two-week low of 1.0949, while the risk-sensitive Australian dollar fell to $0.6247, the lowest since April 2020.The International Monetary Fund cut its 2023 global growth forecast from 2.9 per cent to 2.7 per cent, warning that pressures from inflation, war-driven energy and food crises, and higher interest rates may tip the world into recession and financial market instability.
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