Asian Stocks Fall After US CPI Signaled More Fed Rate Hike

Asian stocks declined sharply on Wednesday, following a weak session on Wall Street, as investors’ optimism weakened after the US inflation read more than expected in August, signaling continued aggressive increases in the Federal Reserve’s benchmark interest rates.

Hong Kong’s Hang Seng index shed 2.4% and became the weakest performer among its regional peers, while Taiwan’s weighted index was down 1.5%.

In mainland China, Shanghai’s blue-chip CSI 300 index lost 1.1%, while the Shanghai Composite index slipped 0.8%. The US was reportedly considering new sanctions against Beijing to prevent its plans to invade Taiwan, with Taipei requesting the European Union (EU) to do the same.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.2%, while Japan’s Nikkei 225 index dropped 2.7%.

A slump in Chinese markets and higher interest rates have weighed down many Asian stock markets this year, and this situation is expected to continue for the rest of 2022.

Moreover, most economies in Asia are facing high consumer prices, which has intensified due to optimism in the US dollar.

US CPI Reading Points to More Sharp Rate Hikes

Regional markets in the US logged overnight losses after the world’s largest economy’s consumer price index (CPI) unexpectedly rose 8.3% in August.

The data hurt the potential of lower prices and a less aggressive stance from the Fed. Tech stocks in the US took the news pretty hard, with Meta Platforms Inc. stumbling 9.4% and Nvidia Corp. slipping 9.5%.

Traders bet on weaker earnings from the tech sector due to a stronger dollar and higher interest rates.

The inflation report also pointed to more sharp rate hikes from the US central bank this year as it makes an effort to control inflation, a possibility that could put stock markets under pressure.

Traders now expect the Fed to make a 75-basis-point rise in the interest rates next week and that the rates will reach over 4% by the end of 2022. In addition, markets have started betting on the possibility that the central bank will increase rates by 1%.