Asian Stocks Down as Inflation and Monetary Tightening Depress Investor Sentiment

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Investing.com – Asia Pacific stocks were mostly down on Friday morning, and the dollar held firm, as high inflation, tighter monetary policy, and COVID-19 lockdowns in China continue to both darken the economic outlook and depress investor sentiment.

Japan’s Nikkei 225 edged up 0.14% by 10:43 PM ET (2:43 AM GMT), with Japanese markets re-opening after a holiday. The Tokyo core consumer price index (CPI) grew 1.9% year-on-year in April 2022, while the Tokyo CPI grew 2.5% year-on-year, and the CPI Tokyo ex-food and energy grew 0.4% month-on-month respectively.

South Korea’s KOSPI fell 1.41% and in Australia, the ASX 200 slid 2.38%.

Hong Kong’s Hang Seng Index tumbled 3.20%.

China’s Shanghai Composite fell 1.48% and the Shenzhen Component slid 1.89%.

U.S. equity futures fluctuated, although losses were smaller compared to Thursday’s slide of more than 3.5% in the S&P 500 index and 5% in the Nasdaq 100 gauge. Australian debt fell after U.S. Treasuries fell and the U.S. 10-year yield climbed above 3%, while the dollar remained near the $103 mark.

The relief rally that swept across markets the day after the U.S. Federal Reserve decided against jumbo-sized interest rate hikes as it handed down its policy decision on Wednesday was replaced by risk aversion. The Fed hiked its interest rate to 1%, the most since 2000, but not by the super margins that worried some investors.

“Valuations become even more sensitive, very sensitive, when rates are going up and that is what we are experiencing,” Invesco chief global market strategist Kristina Hooper told Reuters.

“It’s just getting exacerbated as we get into the thick of monetary-policy tightening in the U.S.”

Investors now await the latest U.S. jobs report, including non-farm payrolls, later in the day. The report is expected to show solid payroll growth, alongside wage costs adding to inflationary pressures.

Across the Atlantic, the Bank of England (BOE) hiked its interest rate to 1% as it handed down its policy decision on Thursday, the highest since 2009. As it joined the growing list of central banks tightening monetary policy, BOE also warned of the possibility of double-digit inflation and a prolonged period of stagnation or even recession.

The BOE warning comes just a day after Fed Chairman Jerome Powell said controlling inflation could cause “some pain” after the Fed’s policy decision. European Central Bank Executive Board member Fabio Panetta also said economic expansion has almost grounded to a halt in the euro area.

Soaring commodities prices are also contributing to rising costs. In crude oil, WTI futures remained above the $108 mark as the latest European Union sanctions on Russian supplies continue to drive supply concerns. The sanctions come in response to the war in Ukraine, precipitated by the Russian invasion on Feb. 24.

Meanwhile, China’s COVID-19 lockdowns also remain concerning, with China’s seven-member Politburo Standing Committee re-iterating its support for the country’s COVID zero strategy.