Asian Benchmarks Mostly Fall as Investors Anticipate US Inflation Report
Asian benchmarks mostly fell on Thursday after a decline in shares on Wall Street and as investors braced themselves for the highly anticipated United States inflation report. The economic update, which was due later in the day, was expected to show an acceleration to 3.3% in July from 3% in June, according to economists. The report was deemed a pivotal event for global markets by Tina Teng, a markets analyst at CMC Markets.
In addition to the US inflation report, concerns over inflation in China also loom large. “A slowdown in consumer spending and high-interest rates remain issues for the global economy,” Teng said.
Japan’s benchmark Nikkei 225 managed to add 0.8% and finished at 32,473.65. Australia’s S&P/ASX 200 rose by 0.3% to 7,357.40. However, South Korea’s Kospi lost 0.3% and fell to 2,596.62. Hong Kong’s Hang Seng slipped 0.2% to 19,208.28, while the Shanghai Composite managed to rise 0.3% to 3,253.08.
Wall Street also experienced a decline, with the S&P 500 falling by 0.7% to 4,467.71, marking its sixth drop in seven days. The Dow Jones Industrial Average lost 0.5% to 35,123.36, and the Nasdaq composite sank 1.2% to 13,722.02 as Big Tech stocks led the declines.
One of the reasons behind the recent pullback in August is the criticism that Wall Street too quickly formed a consensus that inflation will keep cooling, the economy will keep growing, and the Federal Reserve has already finished its hikes to interest rates. Economists believe that getting inflation down to the Federal Reserve’s 2% target may be the most challenging task ahead.
“With risks turning increasingly two-sided, Fed officials are beginning to shift the focus toward how long to hold rates steady at sufficiently restrictive levels,” according to economists at Deutsche Bank.
If inflation were to rise more significantly than expected, it could raise concerns that the Federal Reserve’s fight against inflation is far from over, and interest rates would have to be raised further. This scenario could potentially extend the high rate environment for a longer period than expected, which would negatively impact the economy as a whole.
In the meantime, companies continue to offer better-than-expected profit reports for the spring. Axon Enterprise, the company behind Tasers and Axon body cameras, and Akamai Technologies are among the companies that have performed well recently.
Among the Big Tech stocks, Nvidia was hit the hardest, falling by 4.7%. The chipmaker has experienced significant growth this year due to Wall Street’s fascination with artificial intelligence technology, causing concerns that the stock may have been overvalued. Other tech giants, including Amazon, Microsoft, and Tesla, all saw declines as well, as high rates tend to impact such high-growth stocks the most.
The bond market also saw some movement, with the yield on the 10-year Treasury slipping to 4.00% from 4.03% late Tuesday. This yield sets the rates for mortgages and other loans. Additionally, the two-year Treasury yield, which is more responsive to Fed actions, rose to 4.80% from 4.76%.
In energy trading, benchmark U.S. crude rose by 26 cents to $84.66 a barrel, while Brent crude, the international standard, increased by 24 cents to $87.79 a barrel.
In currency trading, the U.S. dollar edged up to 143.99 Japanese yen from 143.67 yen, while the euro inched down to $1.0995 from $1.0979.
Analyst comment
The news is negative. Asian benchmarks mostly fell due to concerns over the highly anticipated US inflation report and inflation in China. The decline in Wall Street and the potential for higher interest rates if inflation rises further could negatively impact the market. Analyst predicts market volatility and potential longer period of high rates.
