Monday’s Asia trading session took on a decisively risk-off tone: US stock index futures fell, Treasuries gained and risk-sensitive currencies slid as investors fretted over fresh lockdowns to slow the new variant.

Senator Joe Manchin’s rejection of the US spending package at the heart of President Joe Biden’s economic agenda heaped fresh fuel to the fire with market liquidity starting to thin as Christmas nears.

“Markets this week and next will be for day traders with steely nerves and deep pockets, not for trend followers,” Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte, said in a note. “As I have repeatedly said, the winner in December is V for volatility.”

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March contracts on the Nasdaq 100 slid 1.5% as of 3:30 p.m. in Singapore as investors ditched risk-sensitive assets. The selloff was exacerbated as traders in Europe came online, with Euro Stoxx 50 futures slumping 2.7%. Bonds gained, with 10-year US Treasury yields slipping four points to 1.36%.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/views/global-markets/great-transition-accelerated?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>The great transition, accelerated</a>

The safe-haven yen advanced against every Group-of-10 currency, and gold climbed.

Asian stocks fell alongside US futures, with benchmark indexes down in Japan, Hong Kong and Australia, while India’s Sensex index looked poised to enter a correction. The MSCI Asia Pacific Index tumbled as much as 1.9% to trade at its lowest in 13 months amid lower volumes, with about 25 billion shares on the gauge traded Monday at the time of writing, about 75% of the daily average this year.

And the rush for havens looks to have room to run.

Hedge funds have become the least bearish on the yen in nine months, with JPMorgan Asset Management noting demand for the currency could rise into the year’s end if virus concerns mount.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/global-markets/what-can-asian-investors-do-during-volatility?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>What can Asian investors do during this volatility?</a>

Goldman Sachs Group Inc. cut its forecast for US economic growth in the wake of Manchin’s move against the Biden administration’s roughly US$2 trillion tax-and-spend program. Goldman slashed its real gross domestic product projection for the first quarter to 2% from 3% previously.

The backdrop of monetary-stimulus tapering in major economies is also adding to trouble for developing-nation assets.

The removal of accommodative monetary policy by many major central banks “will hit emerging-markets hard”, along with other risk assets that are dependent on plentiful liquidity, according to Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “EM is likely to remain under pressure as we move into 2022.”

Every developing-market currency except the yuan has weakened against the greenback over the past six months. The Turkish lira, which has been under pressure after President Recep Erdogan flagged an economic model that relies on lower borrowing costs, slid to an all-time low on Monday.

In stocks, the MSCI Emerging Markets Index has slid more than 7% this year while the MSCI World Index is up more than 16%.

On Friday, the S&P 500 gauge extended its weekly slide in a session of heavy trading volume. With the holidays fast approaching, it could have been the last day of 2021 with enough liquidity for investors to trade in and out of large positions.

“Unless we see this flow turn around then it feels like we could be at the mercy of position squaring, rather than chasing, and longs taking some off the table ahead of the calendar year-end,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note to clients. - By Ruth Carson & Ishika Mookerjee

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