Asian stocks extend decline on fears of high inflation

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Asian stocks extend decline on fears of high inflation

Asian stocks fell on Thursday after high inflation in the United States reinforced the idea of aggressive monetary tightening and cause Wall Street to crash.

Stocks fell in Japan, Australia and South Korea. US futures fell after the S&P 500 hit its lowest level since March 2021 and the tech-heavy Nasdaq 100 lost 3.1%. Recent trading has been marked by an increase in cross-asset swings.

The Treasury curve flattened on bets that the US Federal Reserve’s monetary tightening will trigger an economic slowdown. The US 10-year yield fell to 2.90%. A dollar indicator was little changed. Oil rallied on falling US fuel inventories.

In currency markets, Hong Kong stepped in after the city’s currency fell to the weak end of its trading band. Digital tokens crashed, victims of dwindling liquidity and evaporating demand for speculative assets. Bitcoin is down over 15% this week.

US inflation moderated to 8.3% but beat expectations, indicating persistent price pressures. Traders raised their bets that the Fed will implement another half-point interest rate hike in September, after similar hikes in June and July.. Russia’s war in Ukraine and Covid-19 lockdowns in China are creating shortages and driving up costs.

For stocks, “we are seeing the beginning of the capitulation and the great reset, in prices,” Virginie Maisonneuve, global chief investment officer for equities at Allianz Global Investors UK, said on Bloomberg Television. “Right now, the big question is peak inflation.”

Fed officials appear to be sticking with their approach of raising rates by half a point at each of their next two meetings. But Atlanta Fed President Raphael Bostic has said he is willing to raise borrowing costs to restrain economic growth if inflation remains high.

In China, Premier Li Keqiang urged officials to use fiscal and monetary policies to stabilize employment and the economy. Covid outbreaks there are undermining growth and entangling global supply chains.

China’s fourth-largest developer, Sunac China Holdings Ltd., said it failed to pay a coupon on dollar bonds by Wednesday’s deadline and does not expect to make payments on other notes, becoming the country’s latest homebuilder to default.

Key events to watch this week:

  • San Francisco Fed President Mary Daly speaks Thursday
  • US PPI Initial Jobless Claims Thursday
  • University of Michigan Consumer Sentiment, Friday

Some of the main movements in the markets:

  • S&P 500 futures were down 0.2% at 9:27 a.m. in Tokyo. The S&P 500 fell 1.7%
  • Nasdaq 100 futures were down 0.3%. The Nasdaq 100 fell 3.1%
  • Japan’s Topix index fell 1.3%
  • Australia’s S&P/ASX 200 index fell 1.2%
  • South Korea’s Kospi fell 0.9%

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