Asia shares drop sharply as US inflation data revives rate hike jitters; STI down 0.9%
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Japan’s Nikkei was 0.13 per cent lower, while Australia’s S&P/ASX 200 index lost 0.25 per cent.
PHOTO: REUTERS
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SINGAPORE – Asian shares slid on Friday while the US dollar was firm after US consumer prices increased more than expected,
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.94 per cent on Friday, on course for its biggest one-day percentage drop in a week, having scaled a three-week high on Thursday.
Declines for Chinese stocks were particularly large after data earlier in the day showed China’s consumer prices were flat in September, while factory-gate prices shrank at slower pace, indicating deflationary pressures persist.
China’s blue-chip stock index CSI300 fell 0.8 per cent, while the Hang Seng Index sank 1.5 per cent in early morning trade.
Japan’s Nikkei was 0.13 per cent lower, while Australia’s S&P/ASX 200 index lost 0.25 per cent.
In Singapore, the Straits Times Index was down 0.9 per cent at 10.52am local time.
The increase in US consumer prices for September contained a surprise surge in rental costs and traders now see a stronger chance the Fed will end up delivering another hike in 2023.
Futures contracts that settle to the Fed policy rate reflect about a 40 per cent probability of a rate hike in December, compared with about a 28 per cent chance seen before the inflation report.
Mr Ryan Brandham, head of global capital markets in North America at Validus Risk Management, said the CPI data highlights the challenges the Fed will face bringing inflation down to its 2 per cent target.
Separate data also showed the number of Americans receiving benefits after an initial week of aid, a proxy for hiring, increased 30,000 to a still-low 1.702 million during the week ended Sept 30.
“The labour market softening is key to the Fed achieving its goal of returning inflation to target, and the hawks calling for at least another hike will be supported based on these numbers,” Mr Brandham said.
The inflation report along with poor demand for an auction of US 30-year bonds sent Treasury yields higher on Thursday.
In Asian hours on Friday, the yield on 10-year Treasury notes eased 3.7 basis points to 4.674 per cent, but remained far off the two-week low of 4.53 per cent it touched a day earlier.
Recent gains in stocks and a slide in Treasury yields had followed comments from Fed officials suggesting that US interest rates – which tend to drive global borrowing costs – may have finally peaked.
“Much of the ‘good’ work done in the past week in the form of bull flattening of the US yield curve has been undone by the latest US CPI report,” said head of FX strategy at National Australia Bank Ray Attrill.
The week’s sharp escalation of Middle East tensions has also ensured the mood remains cautious across markets.
Investors will next focus on remarks by Fed chair Jerome Powell, who is due to speak next Thursday, just before the US central bank’s blackout period begins ahead of its next interest rate decision. The Fed next meets from Oct 31 – Nov 1. REUTERS
