A rise in U.S. inflation lashed Wall Street sending Asian shares to seven-week lows on Thursday. Bond yields also came surging as investors worry that the Federal Reserve might push through sooner with tightening.
Deutsche Bank macro strategist Alan Ruskin said that higher inflation is a definite negative for equities. Given the likely rates response, he added.
Higher inflation dominates the more nominal GDP gains, especially wage inflation, Ruskin said. The more the possible squeeze on profit margins. It plays to a more choppy, less bullish equity bias, he added.
In some countries, stock trade was thin by holidays, such as the MSCI’s broadest index of Asia-Pacific shares outside Japan, which slid 0.6%.
In Japan, the Nikkei touched 1.8%, its lowest since early January, while Chinese blue chips shed 0.7%.
Markets in Asia were already knocked off balance this week amid inflation worries. Additionally, a tech sell-off on Wall Street hit Asian markets too. Furthermore, Taiwan stocks tumbled on fears of a possible partial lockdown due to a virus outbreak in the island.
On Wall Street
Nasdaq futures gained 0.5%, while S&P 500 futures 0.4%. The EUROSTOXX 50 futures, however, lost 0.5% in overnight falls, while FTSE futures dipped 0.3%.
Data surprised Wall Street as it showed that U.S. consumer prices rose the most in almost 12 years in April. Burgeoning demand from a reopening economy met supply curbs at home and abroad.
The outsized increases in airfares, used cars, and lodging costs led to the rise in the country’s consumer prices. They were, however, pandemic-driven and expected to be transitory.
Vice-chair Richard Clarida said the stimulus would still be a necessity for some time. The U.S. central bank’s officials were quick to play down the impact of one month’s numbers.
JPMorgan economist Michael S. Hanson said it likely would take a very strong May jobs report, with sizable upward revisions to March and especially April. To get the Fed to start a discussion about tapering at its June meeting, he added.
They continue to expect the Fed to begin scaling back its pace of asset purchases early next year, Hanson said.
In reaction, investors priced in an 80% chance of a Fed rate hike as early as December 2022.
Yields on 10-year Treasuries steadied at 1.68% after climbing 7 basis points overnight, its biggest daily rise in two months. The yield curve also steepened significantly.