Asian markets opened lower, mirroring losses in US and Europe

• Asian markets opened lower on Wednesday, mirroring losses in the US and Europe.
• Traders reacted unfavourably to higher-than-expected US inflation data, stoking concerns about a prolonged era of interest rate hikes.
• Annual inflation in the United States reached a 40-year high of 9.1 percent in June.

Asian markets opened lower on Wednesday, mirroring losses in the US and Europe, as traders reacted unfavourably to higher-than-expected US inflation data, stoking concerns about a prolonged era of interest rate hikes.

Tokyo, Hong Kong, Shanghai, Seoul, Taipei, and Sydney all began trading lower, reversing recent gains due to bullish market expectations for the US Labor Department’s consumer price index (CPI) report.

According to US government data released on Tuesday, the annual increase in CPI slowed somewhat in August to 8.3 percent, but prices continued to rise month on month, rising by 0.1 percent.

The surprise jolted equities markets, which had been expecting year-on-year inflation in the United States to be about 8%, with prices falling from July levels.

For months, the United States and other economies have been grappling with sky-high price hikes, with annual inflation in the United States reaching a 40-year high of 9.1 percent in June.

Following the news, Wall Street stocks plummeted, with the Dow shedding roughly 1,300 points and the S&P 500 plummeting 4.3 percent.

The announcement will have dashed hopes of a pause in the US Federal Reserve’s strategy of raising interest rates to moderate the economy’s overheating.

The Fed has already implemented two straight 75-basis-point rises, and it is widely expected to make a similar-sized increase at its meeting next week.

Following Tuesday’s statistics, however, some investors believe the next Fed boost will be by a full percentage point.

The fact that “core” US CPI, which excludes volatile food and energy prices, advanced considerably, climbing 6.3 percent year on year, higher than the 5.9 percent recorded in July and June, will be of worry to the Fed.

Despite the welcome relief provided by lower gasoline prices, food, housing, and medical care expenditures have risen.

“Core inflation was scorching hot, coming in double expectations,” said senior market analyst Edward Moya at OANDA.

“The Fed will likely have to be even more aggressive with raising rates and that is bad news for risky assets.”

According to noted investor Louis Navellier, chronically high interest rates to contain inflation may lead to a US recession.

“Stocks are taking it very hard as forecasts are rising for Fed Funds to get higher and stay there longer resulting in a discount of future earnings multiples and increasing recession fears,” he said in a note.

The dollar, which had dipped against its major rivals earlier this week in anticipation of slower inflation, rose in early Asian trade.

On Wednesday, the euro fell below parity with the US dollar once more, reaching $0.9970.

The dollar has risen partially because the Fed has raised interest rates more aggressively than central banks in other major economies.

The European Central Bank hiked its key interest rate by 75 basis points in September, and policymakers have indicated that a similar increase could occur at the following meeting in October.

Global inflation has risen this year as a result of extraordinarily high energy and food prices.

This is largely due to supply restrictions after economies reopened following coronavirus pandemic lockdowns, as well as Russia’s invasion of Ukraine.

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