Stocks fall on rising inflation and Ukraine risks; China markets are recovering

A visitor wearing a protective face mask, after the outbreak of the coronavirus, passes in front of a stock price board outside a brokerage in Tokyo, Japan, March 2, 2020. REUTERS/Issei Kato/Files

Asian stocks extended their global slump on Friday after the fastest inflation rate in the United States in four decades boosted expectations of further interest rate hikes, while Chinese stock markets regained early losses thanks to regulatory guarantees from mainland US listed companies.

Fears over Russia’s war against Ukraine have also worsened, after talks between their two foreign ministers on Thursday brought little lull in the conflict between the two countries.

“We have a terrible macro background (with) a serious inflation problem which means we will see tighter monetary policy,” said Rob Carnell, chief economist at ING in Singapore.

Carnell added that Russia’s war against Ukraine would likely make everything, from energy and minerals to agricultural commodities, much more expensive.

“Everyone’s incomes will be eroded, global growth will be damaged. What more do you need?

“At some point it will likely pull back more sharply, but for now there’s still a bit of a denial in the markets.”

A number of people familiar with the situation told Reuters that the United States, the Group of Seven and the European Union will move on Friday to revoke Russia’s “most favored nation” status over its invasion of Ukraine.

Stripping Russia of its favored status clears the way for the United States and its allies to impose tariffs on a wide range of Russian goods, which will add to the pressure on an economy already heading into a “deep recession.” Read more

By late afternoon in Asia, the broadest MSCI Asia-Pacific stock index outside Japan was (MIAPJ0000PUS.) It had slipped 1.3%, after the decline in Wall Street extended to several state benchmarks in the region.

After pulling back early in the day on regulatory concerns, Hong Kong’s stock market has partially recovered from its losses, with a source familiar with the situation telling Reuters that consultations between Chinese and US regulators on review and regulatory cooperation are moving “relatively smoothly”. Read more

Hang Seng Index (.for him) It finished down 1.6% to close at its lowest level since mid-2016, even as it rebounded from steeper losses earlier today after naming the first Chinese companies likely to be delisted in the United States.

Outside Hong Kong, China’s leading stock index (.CSI300) It managed to recover from early losses, closing in the green with a gain of 0.3%.

Elsewhere, Japan’s Nikkei مؤشر (.N225) It lost 2.0% while South Korea’s stock lost (.KS11) And Australian shares fell 0.7% (.AXJO) It decreased by 0.9%.

Data on Thursday showed that US consumer price inflation jumped 7.9% year-on-year in February, the largest increase in 40 years. The rally suggests that the FOMC could act “more aggressively” to curb inflation, as Fed Chairman Jerome Powell promised last week. Read more

Markets are already expecting the Federal Reserve to raise its target federal funds rate by 25 basis points at the conclusion of its monetary policy meeting next week.

Expectations of monetary policy tightening were also driven by a hawkish tone from the European Central Bank, which said on Thursday it would halt bond buying in the third quarter. Read more

“It is clear that the ECB meeting was more hawkish than expected,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

“We see 11 basis points for a rate hike in the EU by the July ECB meeting.”

In the currency market, the euro was up 0.05% at $1.0988, as the hawkish tone from the European Central Bank failed to significantly boost the momentum of the single currency.

“The European Central Bank has given more clarity to its stimulus exit plans, but it is unlikely to give the euro a sustainable boost, not while the conflict between Russia and Ukraine continues,” Westpac analysts said in a morning note.

The yen fell to its weakest level against the dollar since January 2017, and was last traded at 116.83 per dollar.

dollar index (DXY.) It settled at 98.578, below a more than 1-1/2-year high of 99.418 hit on Monday.

In the bond market, the 10-year US Treasury yield was 1.9794%, while the 10-year Japanese government bond yield was 0.185%.

In the commodity markets, US crude rose 2.2% to $108.38 a barrel. Brent crude rose 2.6 percent to $112.22 a barrel.

Gold was down about 0.3%. Spot gold was trading at $1,989.68 an ounce.

(Coverage) Daniel Losink in Tokyo Editing by Shri Navaratnam, Kim Kogel and Raisa Kasulowski

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