Stocks dive on surging inflation, Ukraine risks; China markets sell-off

A visitor wearing protective face mask, following an outbreak of the coronavirus, walks past in front of a stock quotation board outside a brokerage in Tokyo, Japan March 2, 2020. REUTERS / Issei Kato / Files

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  • > Asian stock markets:
  • Asia follows US, European stocks lower
  • Hong Kong down 3.5%, Nikkei off 2.4%
  • South Korean, Australian benchmark stock indexes also down

TOKYO, March 11 (Reuters) – Asian shares extended a global slump on Friday after the fastest US inflation in four decades and a hawkish European Central Bank (ECB) bolstered expectations for more aggressive rate hikes, hammering sentiment already stung by the Ukraine war.

Sellers swarmed Chinese equity markets after US-listed Chinese stocks tumbled following the naming of the first Chinese firms to be potentially de-listed in the United States.

Risk appetite suffered more broadly as investors braced for faster tightening of monetary conditions after data on Thursday showed a 7.9% annualized jump in US consumer inflation in February, the largest increase in 40 years.

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In morning trade in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) skidded 1.7%, as a retreat on Wall Street spilled over on many of the region’s country benchmarks, which turned deeply red.

Hong Kong’s Hang Seng index (.HIS) slumped 3.5%, with the shares of Yum China (9987.HK), and four other firms taking a beating after the companies were embroiled in an auditing dispute between Beijing and Washington. read more

The sell-off in Chinese shares came even as the country’s securities regulator said on Friday it was confident it would reach an agreement with US counterparts on securities supervision. read more

Outside Hong Kong, the losses in Chinese shares were smaller, with the country’s blue-chip index (.CSI300) down 1.3%.

Elsewhere, Japan’s Nikkei (.N225) lost 2.4%, while South Korean shares (.KS11) shed 1.0% and Australian shares (.AXJO) dropped 0.9%.

Sentiment was also not helped after talks between Ukraine and Russia’s foreign ministers on Thursday brought little respite in the conflict between the two countries.

“Disappointingly, although widely expected, Russia-Ukraine talks failed to yield a positive outcome,” said Rodrigo Catril, a senior foreign exchange strategist at NAB in Sydney.

Analysts believe Russia’s war against Ukraine will push up inflation around the world further as it drives up prices of oil and other commodities.

Goldman Sachs downgraded its US real gross domestic product growth forecast for 2022 to + 1.75% from + 2.0% previously to reflect higher oil prices and other drags on growth related to the war in Ukraine.

While markets widely expect the US Federal Reserve to raise the Fed funds target rate by 25 basis points at the conclusion of next week’s monetary policy meeting, the CPI data suggested the FOMC could move “more aggressively” to curb inflation, as promised by the Fed Chair Jerome Powell last week. read more

The ECB said on Thursday it will stop bond-buying in the third quarter, opening the door for interest rate hikes as surging inflation outweighs worries about the hit to economic growth from Russia’s invasion of Ukraine. read more

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

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

In the currency market, the euro was 0.13% higher at $ 1.0997, as the hawkish tone from the ECB failed to boost momentum for the single currency substantially.

“The ECB gave more clarity to their stimulus exit plans, but it’s unlikely to give the euro a sustained lift, not while the Russia-Ukraine conflict is ongoing,” said analysts at Westpac in a morning note.

The yen traded at 116.25 per dollar after briefly easing to a five-year low of 116.39 per dollar.

The dollar index (.DXY) held steady at 98,491, below a more than 1-1 / 2 year high of 99,418 hit on Monday.

In the bond market, yields on 10-year US Treasury notes were at 1.9671%, while Japan’s 10-year government bond yield was at 0.185%.

In commodity markets, US crude was down 0.4% at $ 105.6 a barrel. Brent crude was 1.0% lower at $ 108.15 per barrel.

Gold was flat. Spot gold was traded at $ 1,995.65 per ounce.

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Reporting by Daniel Leussink in Tokyo Editing by Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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