* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Dollar tops 3-year peak, sovereign bonds in demand
* Markets spooked as virus spreads outside China
* Nikkei comforted as yen's slide aids exporters
* Gold reaches a 7-year peak; watching flash PMI's
By Wayne Cole
SYDNEY, Feb 21 (Reuters) - Asian shares were cast adrift on
Friday as fears over the creeping spread of the coronavirus sent
funds fleeing to the sheltered shores of U.S. assets, lofting
the dollar to three-year highs.
Even Wall Street turned south late on Thursday on reports of
increased infections in Beijing, and as the virus spread in
South Korea and Japan. Corporate earnings are increasingly under threat as U.S.
manufacturers, like many others, scramble for alternative
sources as China's supply chains seize up. "COVID-19 anxiety has risen to a new level amid concerns of
virus outbreaks in Beijing and outside of China," said Rodrigo
Catril, a senior FX strategist at NAB.
"U.S. and EU equity markets have been sold across the board
with core global yields benefiting from safe-haven flows," he
added. "Asian currencies have suffered sharp falls, including
the yen as recession fears trump the usual safe-haven demand."
Adding to the tension was the imminent release of flash
manufacturing surveys for a range of countries. Japan's index
dropped to 47.6, from 48.8, marking the steepest contraction in
seven years. Gold shined as a safe harbour and rose to its highest in
seven years. The yellow metal was last at $1,620.17 XAU=
having added 2.3% for the week so far.
Equities lagged, with MSCI's broadest index of Asia-Pacific
shares outside Japan .MIAPJ0000PUS off 0.2% on Friday in
nervous trade.
South Korea .KS11 slipped 0.8% as the virus spread in the
country, while Japan's Nikkei .N225 edged up 0.1% as a plunge
in the eyen promised to aid exporters.
E-Mini futures for the S&P 500 ESc1 were down 0.25%,
extending the overnight retreat. The Dow .DJI had lost 0.44%
on Thursday, while the S&P 500 .SPX lost 0.38% and the Nasdaq
.IXIC 0.67%.
BUYING BONDS
Sovereign bonds benefited from the mounting risk aversion,
with yields on 30-year U.S. Treasuries US30YT=RR falling below
the psychologically important 2% level to the lowest since
September 2019.
Yields on 10-year notes US10YT=RR were down 7 basis points
for the week at 1.52%.
"The U.S. 10-year has rallied more than all the other liquid
G5 bond market alternatives," said Alan Ruskin, global head of
G10 FX strategy at Deutsche Bank.
"Treasuries attract foreign bond inflows because of their
higher yields, and because higher yields leave more scope for
yields to decline."
Those flows were a boon to the U.S. dollar, boosting it to
multi-month peaks against a raft of competitors this week.
The most spectacular gains came on the Japanese yen as a run
of dire domestic data stirred talk of recession there and ended
months of stalemate in the market.
The dollar was last lording it at 112.08 yen JPY= and set
for its best week since September 2017 with a rise of 2%.
Another casualty of its close trade ties with China was the
Australian dollar, which plumbed 11-years lows AUD=D3 .
The euro fared little better, touching lows last seen in
April 2017 to be last at $1.0787 EUR= .
Against a basket of currencies, the dollar hit a three-year
top at 99.910 .DXY having climbed 0.8% for the week so far.
Analysts at RBC Capital Markets noted the dollar's
outperformance had brought it close to breaching a host of major
chart barriers, which could supercharge its rally.
"This has allowed the DXY to approach the 100.00 threshold –
with a key resistance hurdle at 100.30 now within sight," they
wrote in a note. The same went for the Chinese yuan.
"USD/CNH is now poised to pierce resistance at 7.0559 after
the USD hit new cycle highs against other EM currencies."
Oil prices faded a little early on Friday, but were still up
sharply on the week. O/R
U.S. crude CLc1 dipped 32 cents to $53.56, while Brent
crude LCOc1 futures were yet to trade.
Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
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