Global stocks drop as inflation fears rattle investors

Asia-Pacific equities followed Wall Street lower after data showed US consumer prices rose at their fastest pace since 2008, prompting fears over higher inflation as global economies recover from Covid-19.

Japan’s Topix index lost 0.6 per cent in early trading on Thursday while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped 0.9 per cent. South Korea’s Kospi was down 0.3 per cent and Australia’s S&P/ASX 200 weakened 0.4 per cent. Hong Kong’s Hang Seng shed 0.8 per cent.

The losses came after official data in the US showed inflation rose 4.2 per cent year on year in April. The reading spooked markets, with the S&P 500 closing down 2.2 per cent, the Wall Street benchmark’s worst one-day performance since February.

S&P 500 futures were 0.4 per cent higher during Asian trading while those for London’s FTSE 100 slipped 0.2 per cent.

The sharp market reaction reflected increasing concern over the prospect of higher inflation as the US and other big economies recover from the coronavirus pandemic. A senior Federal Reserve official this week played down inflation risks as a “transitory surge”.

“The Fed’s insistence that inflation is only transitory does have an audience,” said Tai Hui, chief Asia market strategist at JPMorgan Asset Management. “But if inflation data does not calm in the next few months, the challenge to its credibility could be disruptive”.

Tech stocks, which were hit hard in the US, with the Nasdaq dropping 2.7 per cent, also weakened in Asia. In Hong Kong, Tencent and Alibaba both dropped by 1.2 per cent. Tokyo-listed technology conglomerate SoftBank lost 7 per cent despite posting the highest profit on record for a Japanese company a day earlier.

Taiwan’s tech-heavy Taiex index fell as much as 3.4 per cent before paring most of those losses. The country’s benchmark has also suffered this week on a resurgence of Covid-19.

Inflation anxieties have also hit bond markets. The US 10-year Treasury yield slipped 0.02 percentage points to 1.675 per cent after climbing during US trading hours.

The US inflation data came after a period in which global commodity prices have leapt, with investors pointing to strong demand and tight supply as well as their capacity to hedge against inflation. Iron ore prices hit a record in dollar terms on Monday.

The commodities boom also pushed China’s producer price index — a measure of inflation at factory gates — to its highest level in three years in April, though the country’s consumer price index growth remained below 1 per cent.

On Thursday, most commodities including iron ore and crude oil fell. International oil benchmark Brent crude dropped 0.8 per cent to $68.74 per barrel. The Colonial pipeline in the US, which transports oil across the country, resumed operations on Wednesday after being shut down last Friday by a cyber attack.

Gold rose 0.2 per cent to $1,819.76 per troy ounce.