Stocks fell in Asia on Thursday after the release of worse-than-expected inflation data sparked strong selling in technology stocks on Wall Street.
Hong Kong’s benchmark fell 1.5% in early trading following the arrest of several prominent democracy advocates, including a retired Catholic cardinal.
Wednesday’s report from the US Department of Labor showed inflation slowed slightly in April, falling to 8.3% from 8.5% in March. Investors also found half-full signals in the data suggesting inflation could peak and continue to subside, but the numbers were still higher than economists expected.
They also showed a bigger-than-expected rise in prices outside of food and gasoline, what economists call “underlying inflation,” which can be an indicator of future trends.
Markets are focused on inflation and its direction, as this forces central banks to reduce support for economies that has been deployed during the pandemic. The US Federal Reserve, for example, has moved decisively towards higher interest rates after seeing high inflation last longer than expected.
By noon, Hong Kong’s Hang Seng was down 1.1% at 19,613.34. The Tokyo Nikkei 225 fell 0.8% to 26,905.91.
The Shanghai Composite Index edged down 0.2% to 3,051.77. Australia’s S&P/ASX 200 fell 0.9% to 7,002.50. The South Korean Kospi slipped 0.3% to 2,584.97.
On Wednesday, an early rally faded, leaving the S&P 500 down 1.6% at 3,935.18. This wiped out gains from the previous day, when the benchmark broke a three-day losing streak.
The Dow Jones Industrial Average fell 1% to 31,834.11. The Nasdaq fell 3.2% to 11,364.24 as tech stocks weighed on the broader market. The three major indexes are each on pace for another sharp weekly loss.
Small company stocks also lost ground. The Russell 2000 fell 2.5% to 1,718.14.
Economists said the inflation report will keep the Fed on track for quick and potentially steep interest rate hikes in the coming months, although the data has led to erratic trading on Wall Street.
Treasury yields initially jumped, but pared their gains as the morning progressed. The 10-year Treasury yield climbed as high as 3.08% overnight, but fell back to 2.90% early Thursday.
To contain high inflation, the Fed has already pulled its main short-term interest rate from its all-time high near zero, where it has spent most of the pandemic. He also said he may continue to raise rates to double the usual amount at future meetings.
Such measures are designed to slow the economy to help stifle inflation, but the Fed risks causing a recession if it raises rates too high or too quickly. Higher rates tend to drive down the prices of stocks and all kinds of investments in the meantime. Safe, high-yield Treasury bonds, for example, are becoming more attractive to investors.
Conversely, higher rates hurt the appeal of stocks that dominated during the ultra-low rates of the pandemic. This includes big tech companies, other high growth stocks, and even cryptocurrencies. The Nasdaq’s more than 27% loss so far this year is far worse than the roughly 17% drop in the S&P 500, for example.
Coinbase, a crypto-trading platform, fell 26.4% after reporting much weaker last quarter results than analysts expected. Crypto price declines weighed on trading volumes throughout the quarter.
Besides interest rates, in China, shutdowns to stem COVID increase the risk of further supply chain disruptions for global businesses and a slowdown in the world’s second-largest economy.
The war in Ukraine, meanwhile, threatens to keep inflation high due to disruptions in the oil and natural gas markets.
Benchmark U.S. oil fell $1.29 to $104.42 a barrel in electronic trading on the New York Mercantile Exchange. It gained 6% on Wednesday.
Brent crude, the international price standard, fell $1.31 to $106.20 a barrel. It added 4.9% the day before.
In currency trading, the dollar slipped to 129.73 Japanese yen from 129.95 yen. The euro fell to $1.0515 from $1.0517.