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Asian stock markets : https://tmsnrt.rs/2zpUAr4

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Asia stocks ex-Japan hit 2-1/2 year low

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Dollar index at 20-year high, pressuring emerging markets

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Sterling slips anew as UK fiscal credibility shaken

By Wayne Cole

SYDNEY, Sept 28 (Reuters) - Asian share markets slid on Wednesday as surging borrowing costs fed fears of a global recession, spooking investors into the arms of the safe-haven dollar and driving the Chinese yuan to record lows.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.7% to its lowest since April 2020 as selling swept across emerging markets.

Japan's Nikkei shed 2.1% and South Korean stocks fell 2.4% to a two-year low. Chinese blue chips lost 0.6%.

After a steady start, S&P 500 futures got caught in the bearish mood and slipped 0.8%, while Nasdaq futures dropped 1.0%. EUROSTOXX 50 futures fell 0.8%, while FTSE futures lost 0.9%.

"It is now clear that central banks in advanced economies will make the current tightening cycle the most aggressive in three decades," said Jennifer McKeown, head of global economics at Capital Economics. "While this may be necessary to tame inflation, it will come at a significant economic cost."

"In short, we think the next year will look like a global recession, feel like a global recession, and maybe even quack like one, so that's what we're now calling it."

Shaking investor confidence has been the collapse in sterling and UK bond prices, which could force some fund managers to sell other assets to cover resulting losses.

Adding to the risk of yet higher interest rates, the chief economist at the Bank of England said the tax cuts would likely require a "significant policy response".

Moody's on Tuesday warned the UK government that large unfunded tax cuts were "credit negative" and could undermine the government's fiscal credibility.

George Saravelos, global head of FX strategy at Deutsche Bank, said investors now wanted more to finance the country's deficits, including a 200-basis-point rate hike by November and a terminal rate up at 6%.

"This is the level of risk premium that the market now demands to stabilize the currency," said Saravelos. "If this isn't delivered, it risks further currency weakening, further imported inflation, and further tightening, a vicious cycle."

Sterling was under fire again at $1.0660, as the bounce from Monday's record trough of $1.0327 stopped far short of the $1.1300 level held before last week's UK Budget.

Yields on British 10-year gilts have risen a staggering 119 basis points in just four sessions to reach 4.50%, the sharpest such move since at least 1979.