SHANGHAI: Asian stocks slumped on Wednesday after data indicating the largest increase in U.S. inflation in 13 years fueled investor expectations that the Federal Reserve would leave pandemic-era stimulus sooner than originally expected. The consumer price index in the United States increased by 0.9% in June, according to the Labor Department. This was the highest rise since June 2008, and it was above market estimates.
As investors gamble on a global economic rebound that is just weak enough to allow central banks to maintain a dovish stance, global markets have risen in recent weeks, propelling MSCI’s broadest index of global stocks to a new high on Tuesday.
The Reserve Bank of New Zealand (RBNZ) suddenly announced on Wednesday that it would terminate its bond purchase program starting next week, sending the Kiwi dollar substantially higher as markets bet that a rate hike is now likely, ruffling a complacent market.
On Wednesday, European stocks were set to open lower as investors reviewed the policy outlook.
Euro Stoxx 50 futures were down 0.26 percent at the time of writing, while German DAX futures were down 0.34 percent and France’s CAC 40 futures were down 0.33 percent.
The FTSE futures index fell 0.27 percent.
“Against the backdrop of higher, longer U.S. inflation, an early taper appears to be the most likely policy trajectory,” said Rob Carnell, Asia-Pacific head of research at ING.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan declined 0.24 percent, with Chinese blue-chips down 1.08 percent, Hong Kong’s Hang Seng falling 0.7 percent, and Seoul’s Kospi falling 0.21 percent.
The Nikkei 225 index in Japan lost 0.38 percent.
Investors will be watching Fed Chair Jerome Powell’s semi-annual testimony to Congress on Wednesday and Thursday for fresh hints on whether the Fed will adopt more aggressive measures to combat rising inflation. Powell’s testimony comes as the Biden administration pushes for more fiscal stimulus to help the economy grow. Late Tuesday, Democrats on the Senate Budget Committee struck an agreement on a US$3.5 trillion infrastructure investment proposal, which they hope to include in a budget resolution that will be considered later this summer. In Asia, China is expected to report second-quarter economic growth data on Thursday, the same day that banks’ reserve requirements will be reduced by 1 trillion yuan (US$154.47 billion), releasing 1 trillion yuan (US$154.47 billion) to assist support an imbalanced economic recovery. China’s economic growth is projected to have slowed in the second quarter, according to economists polled by Reuters, as increased raw material costs affected manufacturing and new COVID-19 outbreaks weighed on consumer spending. On Tuesday, China’s premier stated that the country will take “comprehensive steps” to combat rising commodities prices. Stocks on Wall Street initially reacted positively to the CPI data, scooping up technology stocks that generally benefit from low interest rates, but major indexes ended the day lower. The Dow Jones Industrial Average dropped 0.31 percent to 34,888.79, the S&P 500 dropped 0.35 percent to 4,369.21, and the Nasdaq Composite slid 0.38 percent to 14,677.65. Investor worries were reflected in a US$24 billion auction of 30-year Treasury notes, which were sold at a yield of 2.00 percent, more than two basis points higher than where the instrument had traded before the sale. Bond rates retreated on Wednesday, following a day earlier surging across the curve in response to inflation data. The 30-year yield fell to 2.0234 percent from 2.037 percent on Tuesday, while the benchmark 10-year yield fell to 1.3963 percent from 1.415 percent on Tuesday. From a finish of 0.255 percent, the policy-sensitive two-year yield was at 0.253 percent. The safe-haven yen strengthened in the currency market, with the dollar falling 0.14 percent against the yen to 110.45. The euro jumped 0.14 percent to US$1.1791 after the dollar hit a three-month high against the single currency earlier. After surging as high as 92.832 – just below the 92.844 level achieved last week for the first time since April 5 – the dollar index, which gauges the greenback against a basket of currencies from other key trading partners, fell 0.15 percent to 92.660. Following the RBNZ’s announcement that asset purchases will come to an end, the New Zealand currency jumped 1.14 percent. Oil prices remained stable as statistics revealed that China’s first-half crude imports fell 3% from January to June compared to the same period last year. They had risen more than 2% on Tuesday after the International Energy Agency warned that due to conflicts among key suppliers, the market should expect tighter supply. The price of U.S. crude lost 0.25 percent to $75.06 per barrel, while Brent crude fell 0.16 percent to US$76.37 per barrel. As the dollar and US rates fell, spot gold jumped 0.37 percent to $1,814.04 per ounce. (Andrew Galbraith contributed reporting, and Ana Nicolaci da Costa edited the piece.)/n
