Asian markets follow Wall Street lower on inflation concerns

Stocks fell in Asia on Friday after a retreat on Wall Street fueled by fears that strong economic data will lead the Federal Reserve to double down on interest rate hikes to control inflation.

Shanghai was flat while other major indexes fell. US futures rose slightly and oil prices rose. Trading ended with the arrival of the Christmas and New Year holidays.

Japan reported that its core inflation rate, excluding volatile fresh food, rose to 3.7% in November, the highest level since 1981, as rising costs of oil and other commodities price pressures increased in the world’s third largest economy.

While the rate was much lower than in the United States and most major European and emerging economies, it added to pressure on the Bank of Japan to adjust its own policies that have kept interest rates very low low to stimulate growth. For Japan, deflation, falling prices, rather than inflation, has been the key concern for most of the past few decades. A recession in the coming months remains the biggest concern, economists say.

“Inflation picked up slightly in November and will peak around 4% around the turn of the year, but we expect it to fall back below the Bank of Japan’s 2% target by mid-2023” , Capital Economics economist Marcel Thieliant said in a report. . .

The Fed has already raised its key overnight rate to its highest level in 15 years. It started the year with an all-time low close to zero. Many economists and investors expect a recession to hit the US economy in 2023.

Tokyo’s Nikkei 225 index lost 1% to 26,242.58 and Hong Kong’s Hang Seng lost 0.5% to 19,578.44. The Shanghai Composite was unchanged at 3,054.52 and Australia’s S&P/ASX 200 fell 0.7% to 7,099.70.

In Seoul, the Kospi fell 1.4% to 2,323.09. Stocks also fell in Bangkok, Mumbai and Taiwan.

Good economic data should be positive for markets as a recession looms, but reports on Thursday suggested the Federal Reserve may need to keep raising interest rates and keep them high to curb inflation.

The Fed is particularly concerned about a still-strong labor market giving more oxygen to inflation, which has eased somewhat in recent months but is still near its highest level in decades. A report Thursday said employers laid off fewer workers last week than expected. Another report showed the US economy expanded at a more robust pace over the summer than previously estimated.

The S&P 500 fell 1.4% on Thursday after falling as much as 2.9% earlier in the day. It closed at 3,822.39. The pullback sends Wall Street’s main measure of health back to a loss of nearly 20% for the year.

The Dow Jones Industrial Average fell 1% to 33,027.49 and the Nasdaq closed down 2.2% at 10,476.12. The Russell 2000 index fell 1.3% to 1,754.09.

The sell-off was broad-based, with all 11 S&P 500 industry sectors ending in the red. Tech stocks were the biggest drag on the benchmark. Chipmaker Nvidia fell 7%.

Trading has been turning upside down on Wall Street recently as reports paint a mixed picture of the economy.

High-growth tech stocks have had some of the worst hits in the past year because they are considered some of the most vulnerable to rising rates.

Electric vehicle maker Tesla is concerned about rising interest rates and specific problems for itself and its CEO, Elon Musk. It fell 8.9%, bringing its loss for the year to around 64%. It is taking the rare step of offering discounts on its two best-selling models until the end of the year, a sign that demand is slowing.

Concerns are generally rising about corporate profits across all industries, which are struggling under the weight of higher interest rates, still-high inflation and rising costs from payroll and other expenses. Weaker corporate earnings could further erode support for stocks, after earnings strengthened for much of 2022.

The housing sector and other areas of the economy whose fortunes are closely tied to low interest rates are suffering. But consumer confidence has strengthened, offering hope for the biggest and most important part of the economy: consumer spending.

In other trading Friday, benchmark U.S. crude rose 79 cents to $78.28 a barrel in electronic trading on the New York Mercantile Exchange. It fell 80 cents to $77.49 a barrel on Thursday.

Brent crude, the benchmark for international trade, advanced 47 cents to $82.14 a barrel.

The US dollar rose to 132.64 Japanese yen from 132.38 yen. The euro strengthened to $1.0607 from $1.0597.

AP business writers Damian J. Troise, Stan Choe and Alex Veiga contributed.

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