Asian stocks fell after Wall Street’s weekly loss on interest rate fears

Asian stock markets tumbled on Monday after Wall Street ended the week on a loss as the US Federal Reserve feared more rate hikes to cool inflation.

The Hong Kong benchmark fell more than 2%. Shanghai, Seoul and Sydney also withdrew while Tokyo saw little change. Oil prices fell.

US stock indexes ended with a weekly loss after a Fed official, James Bullard, rattled investors by suggesting that the central bank’s interest rate may need to be hiked to almost double its already elevated level.

“Bullard dimmed the lights at rallies,” Mizuho Bank’s Tan Boon Heng said in a report.

Hong Kong’s Hang Seng slipped 2.1% to 17,616.06 after the territory’s leader John Lee tested positive for the coronavirus after returning from an Asia-Pacific gathering in Bangkok.

The Shanghai Composite Index was down 0.8% to 2,072.08 and Tokyo’s Nikkei 225 was down less than 0.1% to 27,904.69.

South Korea’s Kospi fell 1.2% to 2,414.20 and Sydney’s S&P ASX 200 lost 0.1% to 7,141.50.

India’s Sensex opened up 0.7% to 61,212.75. New Zealand rose while Southeast Asian markets declined.

On Friday, Wall Street’s benchmark S&P 500 index rose 0.5% to 3,965.34. The Dow Jones Industrial Average rose 0.6% to 33,745.69. The Nasdaq Composite lost less than 0.1% to 11,146.06.

All major US indexes ended in losses for the week after Bullard, President of the St. Louis Federal Reserve Bank, made a presentation suggesting the Fed’s interest rate may need to rise to between 5% and 7%. That would be a rise from its current level of 3.75% to 4% after four hikes of 0.75 percentage points, three times the Fed’s usual margin.

Investors fear that repeated rate hikes by the Fed and central banks in Asia and Europe this year to cool rising inflation could plunge the global economy into recession.

Traders are hoping that signs of slowing economic activity and easing inflationary pressures could prompt the Fed to ease its plans. Fed officials, including Chairman Jerome Powell, have warned interest rates may need to stay high for an extended period to wipe out inflation.

Traders expect the Fed to hike rates again at its December meeting, but by a smaller margin of 0.5pp.

Major US retailers rose after reporting strong quarterly results and giving investors encouraging financial guidance. Discounter Ross Stores rose 9.9%, the biggest gain among S&P 500 stocks. Footwear retailer Foot Locker rose 8.7% after raising its profit and sales guidance for the year.

US retail sales rose 1.3% in October, a sign of consumer confidence ahead of holiday shopping. Amid high inflation, big retailers say Americans are waiting for sales and are refusing to pay full price.

Health care and financial stocks also rose. UnitedHealth Group was up 2.9% and Charles Schwab was up 2.5%.

Energy and communications companies fell. Marathon Oil fell 1.6% amid a broad fall in energy prices. US Crude Oil settled 1.9% lower. Live Nation, an entertainment promoter and venue operator, fell 7.8%.

In energy markets, benchmark US crude fell 61 cents to $79.50 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.56 to $80.08 on Friday. Brent crude, the price basis for international oil trading, fell 79 cents in London to $86.83 a barrel. In the previous session, it collapsed $2.16 to $87.62.

The dollar rose to 140.41 yen from 140.36 yen on Friday. The euro fell from $1.0331 to $1.0283.

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