Asian stocks hit 2-month lows as fast-spreading Delta variant shatters confidence

Asian shares stumbled to two-month lows on Friday and were set for their worst weekly performance since February as confidence took a beating over the global spread of the Delta virus variant and worries it could stall a world-wide economic recovery.

Investors flocked to the safety of bonds overnight with 10-year US Treasury yields reaching levels not seen since February.

"Risk aversion is in the air," said National Australia Bankanalyst Rodrigo Catril.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.9% to 667.99, a level not seen since mid-May. For the week so far, the index is down 3.2%, the biggest decline since early February.

Japan's Nikkei slid 2%. Chinese shares were weaker too with the blue-chip CSI300 index off 1.2%.

Australian shares dropped 1.6%, with stay-at-home orders in Sydney, the country's most populous city, tightened further to stop the spread of the Delta variant of the coronavirus.

Analysts said an accumulation of events have triggered a turn in sentiment rather than a single catalyst.

Monetary policy

Fears central banks will choke economic recovery by tightening policy in their efforts to rein in inflation, a rapidly spreading Delta variant of the coronavirus around the world and still low rates of vaccination have darkened the outlook.

Also raising concerns for investors were political tensions in the Middle East, Russia and China while Beijing's crackdown on foreign-listed Chinese firms took its toll too.

As a result, markets are now starting to question one of this year's most successful trades, the so called reflation narrative -- bets that assets that benefit from a strengthening economy and higher inflation will outperform steadier, safer ones.

Overnight, the yield on 10-year Treasury notes was down 2.8 basis points to 1.293%. It fell as low as 1.25% earlier in the day. The 30-year Treasury bond slipped 1.9 basis points to 1.925%.

In equities, the Dow fell 0.7%, the S&P 500lost 0.86% and the technology-focused Nasdaq dropped0.7%.

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In currencies, the risk sensitive Australian and New Zealand dollars were under pressure, down 0.3% each.

The safe haven yen hovered near a one-month high at 109.81 per dollar. The euro dipped to $1.1836.

That left the dollar index, which tracks the greenback versus a basket of six currencies, slightly firmer at92.423.

Gold, another safe haven asset, was on track for itsbest weekly performance since end-May. It was last up 0.1% at$1,804.84 an ounce.

Oil prices were weaker in early Asian trades after hefty overnight gains. Brent crude was slipped 19 cents to $73.94 a barrel. U.S. crude eased 6 cents to $72.86 per barrel.

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