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Asian markets subdued ahead of US inflation data release
Investors are concerned that strong inflation could lead to higher interest rates.

Interest rate worries also dampen traders’ enthusiasm with fears of an over-heating US economy clouding the mood

 

Asia’s stock markets saw small losses on Tuesday with investors sitting tight ahead of key events this week, notably US inflation data and a meeting of the European Central Bank.

Thursday sees both the publication of keenly-awaited US inflation numbers and the outcome of the ECB’s latest rates meeting.

Investors are concerned that strong inflation, as pandemic-hit economies reopen to the world, could lead to higher interest rates, putting the brakes on recovery.

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In Asia, Tokyo’s main stocks index finished in the red on Tuesday as traders brushed off news that Japan’s economy shrank less than estimated in the first three months of the year while other Asian equities mostly suffered only small losses.

Equities around the world are sitting close to record or multi-year highs after a stellar rally lasting more than a year, fuelled by central bank largesse, vast government stimulus worth trillions of dollars, the rollout of vaccines and easing lockdowns in major economies.

But there is an increasing fear that the explosive recovery in the United States will send prices rocketing and force the Federal Reserve to wind back its market-supportive measures to prevent overheating, such as lifting interest rates.

“Investors are awaiting bigger events later in the week, which may spark some more movement in the markets,” noted Fawad Razaqzada, market analyst at ThinkMarkets.

FED’S STANCE

He added that unless the US inflation number “comes in well ahead of expectations, the Fed’s stance will not change materially”.

Thursday’s US data is expected to show that consumer prices jumped 4.7% last month, which would be the highest level since 2008.

Treasury Secretary Janet Yellen has said that while any spike in prices caused by US President Joe Biden’s proposed $4 trillion aid plan would be short-term, higher borrowing costs would actually be welcomed after a decade of low inflation and rates.

The timing of “when the [Fed] will begin tapering its asset purchase programme is still front and centre for market participants”, said Kim Mundy at Commonwealth Bank of Australia, adding that officials would likely begin discussing a wind-down of their bond-buying programme in July or September.

 

Markets

Tokyo – Nikkei 225: DOWN 0.2% at 28,963.56 (close) 

Hong Kong – Hang Seng Index: FLAT at 28,781.38 (close)

Shanghai – Composite: DOWN 0.5% at 3,580.11 (close)

New York – Dow: DOWN 0.4% at 34,630.24 (close)

 

  • Reporting by AFP 

 

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