Stocks Plunge on Rising Inflation, Ukraine Risks; Market slump in China

A visitor wearing a protective face mask after a coronavirus outbreak walks past a stock listing board outside a Tokyo brokerage office
A visitor wearing a protective mask after a coronavirus outbreak walks past a stock exchange listing board outside a brokerage office in Tokyo, Japan, March 2, 2020. REUTERS/Issei Kato/Files

March 11, 2022

By Daniel Leussink

TOKYO (Reuters) – Asian stocks continued a global slump on Friday after the fastest US inflation in four decades fueled expectations for more aggressive rate hikes and Chinese stock markets slumped over regulatory concerns from US-listed mainland companies.

Sentiment also suffered from worries about Russia’s war on Ukraine after talks between their foreign ministers on Thursday brought little calm to the conflict between the two countries.

“We have a terrible macro backdrop (with) a serious inflation problem, which suggests we’re going to see much, much tighter monetary policy,” said Rob Carnell, chief economist at ING in Singapore.

Russia’s war on Ukraine would likely make everything from energy and metals to agricultural goods much more expensive, Carnell added.

“Everyone’s incomes are being eroded. The global growth is struck. What more do you need?

“Eventually you’re probably going to pull back a lot harder, but right now there’s still a bit of denial in the markets.”

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

Stripping Russia of its privileged nation status paves the way for the United States and its allies to impose tariffs on a wide range of Russian goods, which would further increase pressure on an economy already headed for a “deep recession.” .

By afternoon, MSCI’s broadest index of Asia-Pacific stocks outside Japan was down 2.0% after a decline on Wall Street spilled over to many country benchmarks in the region, which turned deep red.

Sellers flooded Hong Kong’s stock market after US-listed Chinese stocks plummeted after naming the first Chinese firms that the United States may delist.

The Hang Seng index fell 3.7%, with shares of Yum China and four other companies taking a hit after the companies were embroiled in an accounting dispute between Beijing and Washington.

The sell-off in Chinese stocks came as the country’s securities regulator said on Friday it was confident of reaching an agreement with US counterparts on securities regulation.

Outside of Hong Kong, losses in Chinese stocks were smaller, with the country’s blue-chip index slipping 2.6%.

Elsewhere, Japan’s Nikkei lost 2.4%, while South Korean stocks lost 1.1% and Australian stocks 0.9%.

US consumer inflation rose an annualized 7.9% in February, the biggest rise in 40 years, data on Thursday showed. The rise implied that the FOMC could be more “aggressive” to curb inflation, as Fed Chair Jerome Powell promised last week.

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

Expectations of tighter monetary policy were also fueled by a dovish tone from the European Central Bank, which on Thursday said it would halt asset purchases in the third quarter.

“The ECB meeting was significantly more hawkish than expected,” said Chris Weston, head of research at Melbourne brokerage house Pepperstone.

“We see 11 basis points of rate hikes priced into EU rates ahead of the July ECB meeting.”

In the forex market, the euro rose 0.12% to $1.0994 as the ECB’s dovish tone failed to significantly boost momentum for the single currency.

“The ECB has given more clarity to its stimulus exit plans, but it is unlikely to provide a sustained boost to the euro until the Russia-Ukraine conflict lingers,” Westpac analysts said in a morning note.

The yen fell to its weakest level since January 2017 against the dollar at 116.72 per dollar.

The dollar index was steady at 98.561, below a more than 1-1/2 year high of 99.418 hit on Monday.

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

In commodity markets, US crude rose 0.2% to $106.26 a barrel. Brent crude was largely unchanged at $109.23 a barrel.

Gold lost about half a percent. Spot gold was trading at $1,986.47 an ounce.

(Reporting by Daniel Leussink in Tokyo; Editing by Shri Navaratnam and Kim Coghill) Stocks Plunge on Rising Inflation, Ukraine Risks; Market slump in China


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