Asian stocks slump on open, trailing US losses after inflation report

September 14, 2022
7:39 pm

AFP NewsNetwork

Asian stocks slump on open, trailing US losses after inflation report

Asian markets opened lower on Wednesday, with losses in the United States and Europe after traders reacted negatively to higher-than-expected US inflation data, raising fears of an extended stretch of rate hikes.

Tokyo, Hong Kong, Shanghai, Seoul, Taipei and Sydney all opened lower at open, reversing gains made over the past few days on positive market expectations from the US Labor Department’s Consumer Price Index (CPI).

On Tuesday, US government data showed that the annual CPI rise had slowed slightly to 8.3 percent in August, but prices continued to rise month-on-month, rising 0.1 percent.

The news rocked stock markets, which were widely expected for US annual inflation to be around 8 percent, falling compared to July.

The US and other economies have been struggling with sky-high inflation for months, with annual US inflation hitting a 40-year high of 9.1 percent in June.

Wall Street stocks plummeted after the news, with the Dow shedding nearly 1,300 points and the S&P 500 falling 4.3 percent.

The news will have dashed hopes of a slowdown in the US Federal Reserve’s rate-hiking campaign to cool the overheated economy.

The Fed has already initiated two consecutive 75 basis point rate hikes and there are widespread expectations that it will make a similarly large hike at next week’s meeting.

However, following Tuesday’s data, some investors are now predicting that the Fed’s next rate hike could come by a full percentage point.

– “Blood-hot” inflation –

Of concern for the Fed will be the fact that the “core” US CPI, which excludes volatile food and energy prices, accelerated sharply, rising 6.3 percent year-on-year, higher than the 5.9 percent reported in the previous month July and June.

Despite welcome relief from falling fuel prices, the cost of food, shelter and medical care continued to rise.

“Core inflation has been scorching hot, coming in twice as high as expected,” said OANDA senior market analyst Edward Moya.

“The Fed will likely have to be even more aggressive in raising rates, and that’s bad news for risky assets.”

Well-known investor Louis Navellier warned that continuing high interest rates to control inflation could lead to a recession in the US.

“Equities are taking it very hard as forecasts mount that fed funds will get higher and stay there longer, causing future earnings multiples to be discounted and recession fears to mount,” he said in a note.

The dollar, which fell against its main rivals earlier this week on anticipation of easing inflation, surged higher in early Asian trade.

The euro fell below parity against the US currency again on Wednesday, hitting $0.9970.

The dollar’s rise is partly due to the fact that the Fed has been more aggressive in raising interest rates than central banks in other major economies.

The European Central Bank raised interest rates by 75 basis points in September, with officials suggesting a similarly large hike could come at the next meeting in October.

Inflation has skyrocketed worldwide this year due to extremely high energy and food bills.

This was caused in large part by supply shortages as economies reopened following the coronavirus pandemic lockdown and in the wake of the Russian invasion of Ukraine.