SHANGHAI: Asian stocks slumped on Wednesday after data showing the largest increase in US inflation in 13 years fueled market hopes that the Federal Reserve would withdraw pandemic-era stimulus sooner than expected. However, after surging a day earlier on the inflation news, US bond rates and the currency were weaker in Asian trade.
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. “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. “The one ray of hope in all of this is that no one seems to expect much from the Fed in terms of interest rates. So, while we may be getting sooner, we aren’t getting much.” The Reserve Bank of New Zealand (RBNZ) became the latest central bank to announce an end to pandemic-era policies on Wednesday, shocking markets by declaring that its bond-purchasing program would cease next week, pushing the Kiwi dollar substantially higher.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan declined 0.33 percent, with Chinese blue-chips down 1%, Hong Kong’s Hang Seng down 0.66 percent, and Seoul’s Kospi down 0.29 percent.
Miners and energy companies boosted Australian stocks, which were up 0.34 percent.
The Nikkei in Japan was down 0.2 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.
Meanwhile, in Asia, China’s central bank is expected to slash banks’ reserve requirements to assist support an imbalanced economic rebound on Thursday.
China’s leader said on Tuesday that over the next 18 months, the government will keep its economic activities within a sustainable range and take “comprehensive steps” to reduce growing commodity 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.
After soaring across the curve the day before, bond rates drew down on Wednesday.
The 30-year yield fell to 2.0302 percent from 2.037 percent on Tuesday, while the benchmark 10-year yield fell to 1.3998 percent from 1.415 percent on Tuesday.
From a finish of 0.255 percent, the policy-sensitive two-year yield was at 0.2508 percent.
The safe-haven yen strengthened in the currency market, with the dollar falling 0.13 percent against the yen to 110.47. The euro gained 0.08 percent to US$1.1783 after the dollar hit a three-month high against the single currency earlier. The dollar index, which measures the value of the dollar against a basket of other key trading partners’ currencies, fell to 92.747 after reaching as high as 92.832 earlier in the day, barely below the 92.844 level hit last week for the first time since April 5. After the RBNZ announced that asset purchases will come to an end, the New Zealand currency rose 0.85%. 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 jumped more than 2% on Tuesday as the International Energy Agency warned that due to conflicts among key suppliers, the market could expect tighter supply. The price of U.S. crude lost 0.24 percent to US$75.07 per barrel, while Brent crude fell 0.16 percent to US$76.37 per barrel. The price of spot gold increased by 0.11 percent to $1,809.38 per ounce. (Andrew Galbraith contributed reporting, and Ana Nicolaci da Costa edited the piece.)/n
