Asian markets falter as U.S. inflation spikes push rates up on rate hikes

A pedestrian walks past HSBC’s Hong Kong headquarters on April 26, 2022, after the banking giant said its first-quarter profit fell nearly 30 percent due to higher-than-expected credit losses and inflation, but the credit giant focused on Asia, remains optimistic about his outlook. (Photo by Peter PARKS/AFP)

HONG KONG, China (AFP) – Asian markets were mixed on Thursday, as fresh US inflation data, contrary to forecasts, increased bets on a series of sharp hikes in interest rates by the Federal Reserve and other central banks seek to tighten monetary policy.

The long-awaited consumer price index hit a record 9.1 percent in June, the highest level since November 1981, as energy prices continued to skyrocket amid rising demand and weak supply, partly fueled by the war in Ukraine.

Months of skyrocketing inflation have shaken global markets as central banks, fearing prices will get too high, are forced to quickly reverse the super-cheap cash policy introduced at the start of the pandemic.

But it has heightened fears that politicians might go too far and push leading countries into recession.

Wednesday’s CPI data was followed by speculation that the Fed could raise borrowing costs by a full percentage point at its next meeting this month, with some senior officials refusing to rule it out for now.

Last month, the bank announced its first 75 basis point hike in three decades and is one of dozens to raise rates. Singapore and the Philippines were the latest to tighten policy on Thursday, a day after Canada, New Zealand, Chile and South Korea announced hikes.

The inflation reading followed a surprise surge in U.S. job creation on Friday that showed the world’s largest economy was holding its own in rate hikes, giving the Fed more room to raise further.

“Stubbornly high inflation increases the risk that the (Fed) will continue aggressively raising and trigger a recession,” Commonwealth Bank of Australia’s Christina Clifton said, adding that the belief is gaining momentum in the trading floors.

– “Glimpses of Hope” –
And Federated Hermes senior economist Sylvia Dall’Angelo said the data suggested “inflation is likely to remain stable at elevated levels through the end of the year as external and domestic price pressures continue to weigh on consumer prices.”

She added that while commodity prices have not reached their recent peaks, they remain high and are at risk of further supply shocks.

With the labor market still strong and inflation persistently high, “the Fed is likely to resort to hawkish rhetoric and further tightening of policy until at least late fall as it fights to maintain its confidence,” she said.

People walk past the New York Stock Exchange (NYSE) on Wall Street on July 12, 2022 in New York City. (Photo by ANGELA WEISS/AFP)

Wall Street’s three major indexes ended trading in the red, although they pulled back from intraday lows in the hope that the Fed will see results by the end of the year and start cutting rates in the new year.

In Asian trade, Tokyo, Sydney, Wellington, Taipei and Jakarta rose while Hong Kong, Shanghai, Singapore, Seoul, Mumbai, Bangkok and Manila fell.

London, Paris and Frankfurt opened lower.

“The longer inflation remains high, the more central banks will have to tighten measures, and the slower growth will be,” said Stephen Innes of SPI Asset Management.

But despite the general feeling of discouragement, eToro Global Markets Strategist Ben Leidler said there were some “glimmers of hope” in the CPI data.

“The recent drop in super-charged oil and agricultural prices, as well as lower airfare prices, gives hope that we are close to the peak of headline inflation,” he said in a note, adding that inflation was “the most important figure in global markets.” .now”.

“But the first signs of easing inflationary pressures offer some hope for an end to the interest rate spikes and for financial markets to strengthen by Christmas.”

The Fed’s move to tighten monetary policy continues to push the greenback higher, and on Wednesday it finally broke parity with the euro before easing slightly.

However, the energy crisis in the eurozone and the European Central Bank’s decision to slow rate hikes have led commentators to predict that the single currency could fall to $0.95.

The US dollar also broke through 138 yen for the first time since the end of 1998 as the Bank of Japan refuses to abandon its ultra-loose monetary policy to support the country’s sluggish economy.

– Key figures around 08:10 GMT –
Tokyo – Nikkei 225: up 0.6% to 26,643.39 (close)

Hong Kong – Hang Seng Index: DOWN 0.2% to 20,751.21 (close)

Shanghai – Composite: 0.1% DOWN to 3281.74 (close)

London – FTSE 100: DOWN 0.3% to 7,135.38.

EUR/USD: DOWN $1.0035 from $1.0061 on Wednesday

Pound/dollar: DOWN $1.1862 from $1.1893

EUR/GBP: Up 84.60p from 84.59p.

Dollar/yen: up 139.24 yen from 137.36 yen

West Texas Intermediate: REDUCED 0.9% to $95.48 per barrel

Brent North Sea Oil: DECLINE 0.6 to $98.98 per barrel

New York-Dow: DOWN 0.7% to 30,772.79 (close)

© Agence France-Presse