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Asian Stocks Down as Inflation Remains “Biggest Risk”

By Gina Lee – Asia Pacific stocks were down on Friday morning, with Chinese stocks in the U.S. plummeting to around 14-year lows. Investors also digested data showing the highest U.S. inflation in 40 years, which drove U.S. bond yields higher and raised expectations that interest rate hikes will be steeper.

Japan’s Nikkei 225 fell 2.28% by 9:55 PM ET (2:55 AM GMT). Data released earlier in the day showed that household spending grew 6.9% month-on-month, but contracted 1.2% year-on-year, in January 2022. The Business Sentiment Index (BSI) Large Manufacturing Conditions index for the first quarter was -7.6.

South Korea’s KOSPI was down 1.04%.

In Australia, the ASX 200 was down 0.83%, with Reserve Bank of Australia Governor Philip Lowe speaking earlier in the day. Across the Tasman Sea, New Zealand’s Business NZ purchasing managers’ index was 53.6 in February.

Hong Kong’s Hang Seng Index slid 3.23%.

China’s Shanghai Composite fell 1.59% and the ShenzhenComponent was down 1.51%. Chinese stocks trading in the U.S. tumbled, with the Nasdaq Golden Dragon China Index plunging 10% on Thursday, its biggest drop since October 2008. This selloff came after the U.S. Securities and Exchange Commission identified five Chinese companies that could be subject to delisting if they fail to comply with certain auditing requirements.

Data released on Thursday showed that the U.S. consumer price index (CPI) grew 7.9% year-on-year and 0.8% month-on-month in February. The core CPI grew 0.5% month-on-month and 6.4% year-on-year.

The data, while within expectations, added to concerns about the economic recovery from the recent rally in commodity markets. This could lead to more hawkish action from the U.S. Federal Reserve, which is already expected to hike interest rates when it hands down its policy decision on Mar. 16.

“The biggest risk is inflation,” City Index senior market analyst Fiona Cincotta told Reuters. “Even though central banks will try and rush to get through as much tightening as possible in the first half of the year, I think looking further out, they’re going to struggle if growth really starts to take a hit.”

The European Central Bank kept its interest rate steady at 0% as it handed down its own policy decision on Thursday. However, it accelerated its wind-down of monetary stimulus in a surprise move, signaling that the central bank’s focus is on high inflation rather than weaker economic growth.

The 10-year U.S. Treasury yield steadied after climbing above 2%, and the 30-year rate hit its highest level since May 2021. Inflationary pressure is adding to the strain on global markets, with little hope of progress in talks between Russia and Ukraine to end the conflict triggered by Russia’s Feb. 24 invasion of Ukraine. Meanwhile, JPMorgan Chase & Co. (NYSE:JPM) was the latest addition to the list of firms pulling out of Russia over the invasion.

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