BANGKOK – Stocks in Asia fell on Monday after a report that US inflation had deteriorated over the past month sent Wall Street stocks reeling.
Major regional markets fell more than 2% in early trading on Monday, while US futures fell more than 1%. On Friday, the S&P 500 was down 2.9%, ending its ninth week of losses in the last 10.
Investors had hoped that the much-anticipated CPI report would show this the worst inflation in generations had slowed somewhat last month and passed its peak. Instead, the US government said inflation accelerated to 8.6% in May from 8.3% in the previous month.
Investors took Friday’s report to suggest that the Federal Reserve will continue to raise interest rates and take other steps to slow the economy and try to push inflation lower.
Tokyo’s Nikkei 225 fell 2.6% to 27,088.86 and Hong Kong’s Hang Seng also fell 2.6% to 21,245.99. In South Korea, the Kospi slipped 2.8% to 2,524.52, while the Shanghai Composite Index fell 1% to 3,252.58.
Markets in Australia were closed for a public holiday.
On Friday, the S&P 500 fell 2.9% to secure its ninth week of losses in the last 10, and falling bond prices pushed Treasury yields to their highest levels in years. The Dow Jones Industrial Average lost 2.7% and the Nasdaq Composite lost 3.5%.
The Fed is increasingly expected to hike its short-term interest rate by half a percentage point at each of its next three meetings starting next week. That third in September has been a debate among investors for the past few weeks. The Fed has only raised interest rates this much since 2000, last month.
Rising prices and expectations about Fed policy have pushed the two-year Treasury yield to its highest level since 2008, and the S&P 500 down 18.7% from its record set in early January. The worst pain has hit high-growth tech stocks, cryptocurrencies, and other big winners of the earlier days of the pandemic. Now the damage is spreading as retailers and others warn of imminent gains.
Since the pandemic began, record-low interest rates orchestrated by the Fed and other central banks have helped keep investment prices high. Now the “Easy Mode” for investors will be switched off. With higher interest rates making borrowing more expensive and weighing on household and corporate spending and investment, there is also a risk that the Fed could push the economy into recession.
Investors worry that food and fuel costs could continue to rise no matter how aggressively the Fed takes action, in part due to the Crisis in Ukrainewhich is a great granary for the world.
Another report on Friday showed that consumer sentiment deteriorated more than economists had expected. Much of the University of Michigan’s preliminary reading was due to higher gasoline prices.
On Saturday, the national average for a gallon becomes regular gasoline exceeded $5, by a fraction of a penny, according to the AAA Auto Club.
This comes on top of several recent profit warnings from retailers suggesting US shoppers are slowing, or at least changing, their spending due to inflation. Such spending is at the heart of the US economy.
The two-year Treasury yield rose to 3.05% after the inflation report late Thursday, from 2.83% late Thursday, a big move for the bond market.
The 10-year yield also rose, but not quite as dramatically as the two-year yield. It rose to 3.19% early Monday, versus 3.15% on Friday and 3.04% on Thursday. This is the highest level since 2018.
The narrowing gap between these two returns is a signal that fixed income investors are becoming more concerned about economic growth. Usually the gap is large, with 10-year yields being higher because they require investors to lock up their dollars longer.
A two-year yield above the 10-year yield would signal to some investors that a recession could be on the horizon in a year or two.
Elsewhere, U.S. crude oil, the benchmark in electronic trading on the New York Mercantile Exchange, fell $2.11 to $118.56 a barrel. On Friday, it lost 84 cents to $120.67.
Brent crude, the price standard for international trade, fell $2.13 to $119.88 a barrel.
The dollar rose to 134.81 Japanese yen from 134.37 yen. The euro fell from $1.0518 to $1.0493.
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https://www.local10.com/business/2022/06/13/asian-shares-sink-after-inflation-driven-retreat-on-wall-st/ Asian stocks fall after inflation-driven pullback on Wall Street