Stocks tumble due to renewed inflation fears

Employees of foreign exchange firm Gaitame.com work in front of screens showing the average exchange rate of the Japanese yen against the US dollar, the euro and the Nikkei in a dealing room in Tokyo, Japan on June 22, 2022. REUTERS/Issei Kato

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Asian stocks fell broadly on Wednesday, failing to extend Wall Street’s recovery as persistent concerns about interest rates and inflation remained a major focus for investors, while the Japanese yen hit a 24-year low against the dollars.

MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS) is down 1.39%, still 1.02% higher than Monday’s more than five-week low. Tokyo’s Nikkei (.N225) gave up early gains and settled.

Investors continue to assess how worried they are about central banks pushing the global economy into recession as they try to curb sharp red inflation by raising interest rates.

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Major US stock indexes rose 2% overnight on the prospect that the economic outlook may not be as dire as thought during trading last week when the S&P 500 (.SPX) posted its biggest weekly percentage decline since March 2020.

But the improvement in sentiment was short-lived with S&P 500 and Nasdaq futures down nearly 1% on Wednesday, EUROSTOXX 50 futures losing 1.3% and FTSE futures down 0.9%.

“I think this latest post-holiday bear market rally is a reflection of investor uncertainty about whether or not we’ve seen peak inflation and Fed tightening — I think we’re close,” said Invesco global market strategist for Asia Pacific David Chao.

“Although I doubt that the global stock markets could end at the end of the year at a higher level than we are today, it is possible to expect continued market volatility until it becomes clear that the Fed will not force the US economy into contraction. To adjust for persistent levels of inflation.”

Chinese blue-chip stocks (.CSI300) lost 0.44%, Hong Kong’s Hang Seng Index (.HSI) fell 1.24%, and South Korea’s KOSPI Index (.KS11) fell 1.82%.

US Federal Reserve Chairman Jerome Powell is set to testify before Congress on Wednesday as investors look for more clues as to whether a 75 basis point rate hike in July is imminent.

Economists polled by Reuters expect the Federal Reserve to raise interest rates by 75 basis points next month, followed by a half percentage point rise in September, and not fall back to a quarter of a percentage point until November at the earliest. Read more

Most other global central banks are in a similar position, with the exception of the Bank of Japan, which pledged last week to maintain its ultra-low interest rate policy.

The gap between low interest rates in Japan and higher US interest rates weighed on the yen, which reached a new 24-year low of 136.71 per dollar in early trade, before drifting further to 136.25.

The Bank of Japan’s monetary policy meeting minutes released on Wednesday that were released on Wednesday showed the central bank’s concerns about the impact of a depreciating currency on the business environment in the country. Read more

Other currencies’ movements were more subdued on Wednesday, as the dollar index, which measures the greenback against six peers, rose to 104.62.

The yield on the 10-year US Treasury was fairly flat at 3.2617%.

Oil prices fell as US President Joe Biden on Wednesday expected to call for a temporary suspension of the 18.4-cents-a-gallon federal tax on gasoline, a source familiar with the plan told Reuters.

Brent crude fell 3.37 percent to $110.79 a barrel, while US crude fell 3.71 percent to $105.46.

Spot gold fell 0.32%, to trade at $1,826.72 an ounce.

Bitcoin has lost 6.54% from its high on Tuesday and is trading at $20,288 after dropping to $17,592 last week.

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Additional reporting by Sam Byford in Tokyo; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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