Asian stocks were bruised after US inflation data bolstered recession fears

HONG KONG (Reuters) – Asian stocks suffered on Thursday and the safe-haven dollar was strong as hot US inflation data led to fears the Federal Reserve will raise interest rates more aggressively to slow price increases, which could push the economy into recession. .

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) lost 0.1%, flying above a two-year low hit on Tuesday, while US Nasdaq futures slid 0.3%.

Japan’s Nikkei (.N225) bucked the trend, rising 0.6%, supported by a weaker yen against the dollar that supported exporters.

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US overnight data showed that rising fuel, food and rent costs pushed the Consumer Price Index (CPI) up 9.1% last month, leading to concerns that the Federal Reserve may raise interest rates by 100 basis points at its meeting next month instead of 75. It was expected. Read more

“The worrying aspect of the CPI numbers is the breadth of increases,” said Shane Oliver, chief economist at AMP, who said nearly 90% of US CPI components saw increases of more than 3%.

Market pricing on CME’s Fedwatch tool currently indicates a 78% chance of a 100 basis increase, although Oliver said this could be a quick reaction to the higher CPI reading.

“Personally, I think the Fed will stick to 75 – which is still a high number – if they go to 100, it looks like they’re in a panic.”

“Only time will tell that the Fed has an unconditional commitment to lower inflation again.”

US two-year yields, which reflect interest rate expectations, were last at 3.121%, far from a four-week high, extending their lead over the benchmark US 10-year yield of 2.9558%.

The so-called yield curve inversion, when short-term interest rates are higher than longer-term interest rates, is seen as an indicator of recession, and the gap between the two touched 25 basis points in early Asia.

This is also bad news for the Asian economies and stocks.

Carlos Casanova, chief economist at UBP, said a recession in the US would mean lower demand for Asian exports, as investors turn more “risk-taking” and take money out of emerging markets, forcing Asian central banks to raise interest rates themselves to avoid them as well. currency devaluation.

“So far it looks like the Bank of Korea and the Reserve Bank of New Zealand are competing with each other to see who can be more hawkish, but all the other central banks are lagging. We will see more rate hikes in Asia, which will slow aggregate demand and growth credit, depreciation, and the like.

Singapore’s central bank also tightened monetary policy on Thursday, in an out-of-cycle move hoping to slow inflation, sending the local currency up 0.7%.

Elsewhere in the currency markets, the euro was once again hovering above parity with the dollar at $1.00155. It briefly fell to $0.9998 overnight, breaking below $1 for the first time since December 2002.

The European Central Bank faces the dilemma of whether to let the currency fall further, drive already record high inflation, or fight back with more rapid interest rate increases, adding to the damage to an economy already hard hit by rising energy costs. Read more

The dollar was also strong against the other major currencies, rising over 138 yen for the first time since September 1998.. The dollar index, which measures the currency against six major pairs, was flat at 108.45.

Oil prices extended their recent losses slightly due to inflation concerns.

September Brent crude futures fell 0.1% to $99.49, and US West Texas Intermediate crude lost 0.15% to $96.17.

Gold faced significant selling pressure as higher interest rates hurt non-interest bearing assets. Spot price is down 0.5% at $1,725 ​​an ounce.

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Alon John reports. Editing by Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.

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