* ECB monitoring nominal interest rates, Schnabel says
* Euro zone, U.S. 10-yr yields ease
* Australia's central bank tries to stem bond bleeding
* Emerging market stocks in biggest daily drop since May
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
* Dollar lifted by rise in yields
* Bitcoin set for worst week since March
By Tom Arnold
LONDON, Feb 26 (Reuters) - Global stocks fell on Friday,
with emerging market and Asia shares hardest hit, as a recent
rout in global bond markets spooked investors amid fears the
heavy losses suffered could trigger distressed selling in other
assets.
MSCI's Emerging Markets equity index .MSCIEF suffered its
biggest daily drop in nearly 10 months and was 3.1% lower, while
European shares were deep in the red, with the STOXX 600
.STOXX down 1.1%.
The MSCI world equity index .MIWD00000PUS , which tracks
shares in 50 countries, was 1.1% lower and heading for its worst
week in a month.
U.S. futures pointed to a marginally positive open for Wall
Street EScv1 , with S&P 500 e-minis up 0.1% EScv1 and futures
for the tech-heavy Nasdaq up 0.2% NQcv1 . Asia earlier saw the heaviest selling, with MSCI's broadest
index of Asia-Pacific shares outside Japan .MIAPJ0000PUS
sliding more than 3% to a one-month low, its steepest one-day
percentage loss since May 2020.
For the week, the index was down more than 5%, its worst
weekly showing since March last year when the coronavirus
pandemic had sparked fears of a global recession.
"It is not the beginning of a correction in equities, more a
logical consolidation as price-to-earnings ratios were
excessive," said Francois Savary, chief investment officer at
Swiss wealth manager Prime Partners.
"What is reassuring is that Q4 2020 earnings were good and
earnings per share surprisingly good, and that means down the
road we should get back to growth."
Friday's carnage was triggered by a whiplash in bonds as
rising inflation expectations triggered a selloff of safe-haven
debt.
The scale of the recent sell-off prompted Australia's
central bank to launch a surprise bond buying operation to try
to staunch the bleeding. European Central Bank executive board member Isabel Schnabel
reiterated on Friday that changes in nominal interest rates had
to be monitored closely. Germany's benchmark yield was on course for its biggest
monthly jump in three years.
Still, there were signs of respite. On Friday, 10-year
German government bond yields DE10YT=RR were down 4 basis
points at -0.248%. French FR10YT=RR and Austrian AT10YT=RR
bonds were back in negative territory after both turning
positive on Thursday for the first time since June.
Yields on the 10-year Treasury note US10YT=RR eased back
to 1.4633% from a one-year high of 1.614% on Thursday.
"Bond yields could still go higher in the short term,
though, as bond selling begets more bond selling," said Shane
Oliver, head of investment strategy at AMP.
"The longer this continues, the greater the risk of a more
severe correction in share markets if earnings upgrades struggle
to keep up with the rise in bond yields."
Markets were hedging the risk of an earlier rate hike from
the Federal Reserve, even though officials this week vowed any
move was long in the future.
Even the thought of an eventual end to super-cheap money
sent shivers through global stock markets, which have been
regularly hitting record highs and stretching valuations.
"The fixed income rout is shifting into a more lethal phase
for risky assets," says Damien McColough, Westpac's head of
rates strategy.
"The rise in yields has long been mostly seen as a story of
improving growth expectations, if anything padding risky assets,
but the overnight move notably included a steep lift in real
rates and a bringing forward of Fed lift-off expectations."
EMERGING STRAINS
Overnight, the Dow .DJI fell 1.75%, while the S&P 500
.SPX lost 2.45% and the Nasdaq .IXIC 3.52%, the biggest
decline in almost four months for the tech-heavy index.
All of that elevated the importance of U.S. personal
consumption data due later on Friday, which includes one of the
Fed's favoured inflation measures.
Core inflation is actually expected to dip to 1.4% in
January, which could help calm market angst, but any upside
surprise would likely accelerate the bond rout.
The surge in Treasury yields caused ructions in emerging
markets, which feared the better returns on offer in the United
States might attract funds away.
Currencies favoured for leveraged carry trades all suffered,
including the Brazil real and Turkish lira TRYTOM=D3 , which
slid for a fifth straight day, erasing all the year's gains.
The flows helped nudge the U.S. dollar up more broadly, with
the dollar index rising to 90.568. It also gained on the
low-yielding yen, briefly reaching the highest since September
at 106.42 JPY= . The euro EUR=EBS slid 0.6%.
With riskier assets under pressure, bitcoin BTC=BTSP fell
5% to $44,713, set for its worst week since March.
The jump in yields has tarnished gold, which offers no fixed
return, and dragged it down 0.5% to $1,763.00 per ounce XAU= ,
headed for its second straight monthly decline.
Oil prices dropped on a higher dollar and expectations of
more supply. O/R
U.S. crude CLc1 fell 2% to $62.26 per barrel and Brent
LCOc1 lost 1.4% to $65.89.
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Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
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