Asian stocks slide as Fed hike fears tip Wall St into bear market

HONG KONG, June 14 (Reuters) – Asian shares slid sharply and the safe-haven dollar held near a two-decade peak on Tuesday after Wall Street hit a confirmed bear market milestone on fears aggressive U.S. interest rate hikes would push the world’s largest economy into recession.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.45% in volatile trade, clawing back some of its earlier losses.

Australia’s benchmark S&P/ASX200 (.AXJO) closed 3.55% lower while Japan’s Nikkei stock index (.N225) was down 1.32%, having fallen as much as 2% earlier in the session.

The negative tone in Asia followed a bleak U.S. session on Monday, which saw Goldman Sachs forecast a 75 basis point interest rate hike at the Federal Reserve’s next policy meeting on Wednesday. read more

However, investors appeared to be shaking off the gloom heading into European trade with the pan-region Euro Stoxx 50 futures up 0.83%, German DAX futures 0.9% higher and FTSE futures rising 0.62%. U.S. stock futures also added 1.17%.

“While there is clearly a risk from a significant policy tightening, it remains unlikely that there will be a fully fledged recession, with the unemployment rate jumping by two or more percentage points,” said Stephen Koukoulas, managing director at the Canberra-based Market Economics.

“Rather, it is certain growth will slow – which is the aim of the policy tightening – and by late this year, inflation pressures should start to ease.”

In Hong Kong, the Hang Seng Index (.HSI) pared earlier losses to be up 0.26% after trading in negative territory for most of the day. China’s CSI300 Index (.CSI300) retraced some of its lost ground to be off 0.23%.

Expectations for aggressive U.S rate hikes have risen after inflation in the year to May shot up by a sharper than predicted 8.6%.

“The U.S. market is the biggest in the world so when it catches a cold the rest of the world does as well,” said Clara Cheong, global market strategist at JP Morgan Asset Management.

“There will be short-term volatility in Asia but we think in the medium to longer term in Asia ex-Japan, earnings expectations have already been downgraded so there is a relatively brighter outlook here than other parts of the world.”

Cheong said China monetary easing and the re-opening of ASEAN economies from COVID-19 lockdowns could shield the region from some of the financial market fallout.

On Wall Street overnight, fears of a U.S. recession kicked the S&P 500 (.SPX) down 3.88%, while the Nasdaq Composite (.IXIC) lost 4.68%. The Dow Jones Industrial Average (.DJI) fell 2.8%.

The benchmark S&P 500 is now down more than 20% from its most recent record closing high, confirming a bear market, according to a commonly used definition.

Benchmark 10-year Treasury yields hit their highest since 2011 on Monday and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that Fed attempts…