Australia

Australian shares are set to start the week lower after the Nasdaq sold off for a fourth week as investors repositioned portfolios for higher rates.

ASX futures were down 49 points or 0.7% at 7006 near 8.00 am AEST, suggesting a negative start to trading.

All three major US indexes fell for a third consecutive week, continuing their slide to start 2022, with investors worried about the prospect of higher interest rates and their effect on valuations.

The S&P 500 and Nasdaq Composite Index wrapped up their worst weeks since March 2020; the Nasdaq has fallen for four weeks in a row. The Dow Jones Industrial Average finished its worst weekly performance since October 2020.

All three major indexes fell Friday, ending a holiday shortened four-day trading week. The S&P 500 fell 1.9%, while the Dow industrials lost 1.3%. The Nasdaq was off 2.7%.

Locally, the S&P/ASX 200 closed 2.3% lower at 7175.8, with all sectors finishing in the red.

The materials sector was the biggest loser, closing down 3.5%. Whitehaven tumbled 6.1% after it said it will likely produce less coal than expected this fiscal year. Rio Tinto fell 4.1%, as it said it was reviewing the decision by Serbia's government to revoke licenses for the mining company's lithium project. BHP fell 4.8% after it said shareholders have approved a plan to end its dual listing in London.

Energy dropped 3% as Woodside shed 2.4% a day after booking record Q4 revenue. Santos was down 2.6%.

The heavyweight financial sector was down 1.8%, with the big four banks declining between 0.6% and 1.6%. Z1P dropped 7.8% after analysts flagged further delays to profitability.
The ASX 200 lost 3.0% over the week, its biggest weekly decline in around 14 months.

Overseas, shares in Asia-Pacific and Europe broadly retreated Friday. Some Chinese drugmakers surged after they were selected to help make cheaper versions of Merck's Covid-19 pill. BrightGene Bio-Medical Technology rose 20%, and Viva Biotech advanced 14%. The pan-continental Stoxx Europe 600 fell 1.8%, while China's Shanghai Composite Index and Japan's Nikkei 225 declined 0.9%.

Turning to commodities, gold futures dipped 0.6% to $US1834.10 an ounce; Brent crude fell 0.5% to $US87.89; Iron ore continued to rally, advancing 2.8% to US$137.40 a tonne.

Investors returned to long term bond markets after days of selling, the yield on the Australian 10-year bond declined to 1.91%, while the benchmark US 10-year Treasury yield edged lower to 1.76%. Yields fall when prices rise.

The Australian dollar was buying 71.81 US cents near 8.00am AEST, down from the previous close of 72.24. The WSJ Dollar Index, which measures the US dollar against 16 other currencies, slipped to 89.46.

Asia

Chinese stocks closed lower for the third straight day, with broad losses in the pharmaceutical sector even though some drug makers rose, while oil & gas companies also weighed on the market. Drug makers Fosun Pharma was up 6.0% and BrightGene Bio-Medical jumped 20%, following news they signed a deal to make Merck's Covid-19 pill, but Wuxi AppTec lost 3.0% and Shenzhen Mindray Bio-Medical declined 3.6%. PetroChina slipped 4.3% and Sinopec shed 1.4%, weakening from recent gains as oil prices slipped. But coal miners and liquor makers rose. Yankuang Energy gained 3.0% and Wuliangye Yibin added 1.9%. The Shanghai Composite Index dropped 0.9%, the Shenzhen Composite Index was 1.3% lower and the ChiNext Price Index fell 1.0%.

Hong Kong's Hang Seng Index slipped 0.5% after logging strong gains on Thursday, as the Chinese tech sector and some financial shares weakened. The local market's near-term outlook was relatively firm despite recent weakness on Wall Street, KGI Securities said, as Beijing moves to shore up a slowing economy by loosening monetary policy. NetEase was the top loser with a 5.4% decline, while Alibaba Group retreated 4.1%. HSBC Holdings shed 2.2%, China Life Insurance was down 0.8% and Ping An Insurance 1.1% lower. Country Garden Holdings dropped 3.9% after the company said it plans to issue convertible bonds to raise HK$3.90 billion. Consumer-product companies rise, with China Resources Beer adding 3.6% and ANTA Sports up 2.0%.

Japanese stocks ended lower, dragged by falls in electronics and auto stocks, as concerns persist about the Fed's tightening pace. Tokyo Electron Ltd. sheds 6.2% and auto-parts maker Denso Corp. drops 4.0%. The Nikkei Stock Average falls 0.9% to 27522.26. USD/JPY is at 113.80, down from 114.08 as of Thursday 5 p.m. Eastern Time. Investors are focusing on US economic data and their implications for monetary policy. Prime Minister Fumio Kishida's online meeting with President Biden later in the day will be also closely watched. The 10-year Japanese government bond yield falls one basis point at 0.130%.

Europe

European markets slump amid geopolitical tensions, with banks and food & drink companies among only a few stocks bucking the negative trend. The pan-European Stoxx 600 declined 1.84%.

"It's been a disappointing end to the week for European markets, with the FTSE 100 posting its first weekly decline since mid-December and the DAX sliding to a one-month low," CMC Markets analyst Michael Hewson says. "Sentiment hasn't been helped by rising concern that the situation on the Ukraine-Russia border may be deteriorating further after the US said it was considering evacuating diplomats' family members from Ukraine."

In London, the FTSE 100 fell 1.2% on Friday, bringing its weekly loss to 0.65%.

North America

All three major US indexes fell for a third consecutive week, continuing their slide to start 2022, with investors worried about the prospect of higher interest rates and their effect on valuations.

The S&P 500 and Nasdaq Composite Index wrapped up their worst weeks since March 2020; the Nasdaq has fallen for four weeks in a row. The Dow Jones Industrial Average finished its worst weekly performance since October 2020.

All three major indexes fell Friday, ending a holiday shortened four-day trading week. The S&P 500 fell 1.9%, while the Dow industrials lost 1.3%. The Nasdaq was off 2.7%.

Investors have repositioned their portfolios away from riskier assets to start the year. The prospect of higher rates has particularly hit highflying tech stocks and shares of unprofitable companies, shoving the Nasdaq into correction territory. Meanwhile, oil and yields on government bonds have climbed in 2022.

Investors' largely expect that the Federal Reserve will raise interest rates several times this year to combat inflation, which has weighed on stocks. Last week, Fed Chair Jerome Powell called rapid inflation a "severe threat" to a full economic recovery. Data showed consumer prices soared to about a four-decade high in December. Even with the hikes, interest rates will remain near historic lows, which investors hope will buoy markets.

"The Fed is saying 'OK, zero interest rates don't make sense here, so we're going to move back toward something more reasonable,'" said Jonathan Golub, chief US equity strategist and head of quantitative research at Credit Suisse. "They're not really hikes, but signals that a big rate of change is coming."

Mr. Golub remains optimistic about equity markets, citing a year-end price target of 5200 points for the S&P 500, about 5.3% higher than Wall Street strategists' average target.

Cryptocurrencies tumbled, with bitcoin losing about 8.1% compared with its level 24 hours earlier, trading around $38,000. Ether fell 12%.

"All risk premium assets—crypto, high leverage, growth names—are being impacted, and what's working right now is the opposite of that, quality stocks," said Jerry Braakman, chief investment officer and president at First American Trust. He recommends that investors don't buy the dip for tech stocks.

Aoifinn Devitt, chief investment officer at Moneta, said higher yields will normalize the valuations of some tech stocks and make economically sensitive sectors of the market, such as utilities and real estate, more attractive. "By no means are we getting to a yield that is making equity markets look unattractive," said Ms. Devitt.

Within the S&P 500, only the consumer staples sector closed in the green, rising less than 0.1%. Clorox Co. added $2.60, or 1.5%, to $178.60, Colgate-Palmolive Co. gained $0.83, or 1%, to $83.67 and Procter & Gamble Co. advanced $0.62, or 0.4%, to $162.62.

Stay-at home stocks have come under pressure lately. Netflix shares plunged $110.75, or 22%, to $397.50 after the company said it expected a slowdown in subscriber growth. Peloton rose $2.84, or 12%, to $27.06, recouping some losses after the stock tumbled nearly 24% Thursday on reports that the connected-fitness company was halting production. Its chief executive pushed back against the claims.

Ms. Devitt said it would be hard for companies like Netflix and Peloton to notch the same level of growth in 2022 as they did when the pandemic first started. Innovation will remain key for stay-at-home stocks if they want to trudge higher, she added.

Investors' bets on faster rate increases have driven up inflation-linked bond yields, seen as a benchmark for financing costs. The yield on the benchmark 10-year Treasury note edged down to 1.747% Friday, the largest one-day yield decline since 3 Dec. Tensions between Russia and NATO are also weighing on market sentiment, investors said.

"Geopolitical risk plays a role, repricing of [central bank] policy plays a role and the inflation mix in the sense of cost pressures. You put all those together and there is actually quite a change," said Georgina Taylor, a multiasset fund manager at Invesco. "Risk premium for equities needs to go up."

Oil prices also declined Friday. Global benchmark Brent crude fell 0.55% to $87.89 a barrel, the largest decline in almost two weeks, weighed down by a surprise increase in US crude stockpiles, according to analysts at RBC Capital Markets.