Asian stocks fell on Wednesday, trailing Wall Street’s decline ahead of a crucial US inflation report later in the day that could have a major impact on the Federal Reserve’s plans to raise interest rates.
Investors are preparing for the CPI figure with a sense of dread as analysts warn that a better-than-expected forecast would increase bets of another big Federal Reserve rate hike and heighten recession expectations.
The US Federal Reserve has said its decision on when and how much to tighten monetary policy will be driven by data as it struggles to walk a fine line between bringing inflation from four-decade highs and trying , not to harm the economy, to go.
There was hope that recent indicators showing a slowdown in activity would give the Fed room to be less hawkish. But a larger-than-predicted jump in jobs last month reignited talk of a third straight three-quarter-point hike in September.
“The (Fed Policy Board) needs to ensure that inflation is making a sustained move back towards target before it considers pausing its tightening cycle,” said Carol Kong of the Commonwealth Bank of Australia.
“A strong inflation read today will likely confirm that the (board) is some way from that point and see markets upgrade their expectations for US interest rates.”
Wednesday’s numbers come at a sensitive time for global markets, which have been battered by a host of other issues including the war in Ukraine, supply chain snarls and rising China-US tensions in Taiwan.
While last earnings season was less painful than feared, there are mounting signs that the economic slowdown is starting to impact companies, with some big companies – including Apple and Amazon – offering a bleak outlook.
Chipmaker Micron was the latest, saying fourth-quarter earnings were likely to come in at the lower end of its guidance due to weak demand. That comes a day after rival Nvidia unveiled disappointing results.
Technology companies led losses in New York, with the Nasdaq falling more than a percent, and they did so in early Asian trade.
Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Wellington, Taipei, Manila and Jakarta were all down well.
There was little immediate reaction to news that China’s consumer price index rose to a two-year high last month but fell short of expectations.
Oil prices were flat, but remained at a six-month low even after it was announced that supplies from Russia to three European countries via Ukraine had halted as sanctions banned the processing of the transit payment.
The cost of the commodity has essentially wiped out any gains made since Russia invaded its neighbor in February, when expectations of a recession hit demand forecasts, while rising prices discourage consumers from buying gasoline.
But OANDA’s Edward Moya said the market is unlikely to weaken further.
“Whatever destruction of crude oil demand occurs from a slowing global economy won’t be able to drag oil prices down much further given how low the supply outlook remains,” he said in a note.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: down 0.8 percent at 27,767.07 (breakout)
Hong Kong – Hang Seng Index: down 1.6 percent at 19,687.72
Shanghai — Composite: down 0.4 percent at 3,233.24
Euro/Dollar: UP at $1.0215 from $1.0213 on Tuesday
Pound/dollar: rise to $1.2081 from $1.2071
Euro/Pound: DOWN at 84.55p from 84.57p
Dollar/Yen: DOWN at 135.06 yen from 135.12 yen
West Texas Intermediate: FALSE, up 0.1 percent at $90.45 a barrel
North Sea Brent Crude: up 0.1 percent to $96.39 a barrel
New York – Dow: down 0.2 percent at 32,774.41 (close)
London – FTSE 100: up 0.1 percent at 7,488.15 (close)
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