Asian markets follow Wall Street lower on inflation concerns

Stocks in Asia fell on Friday after a pullback on Wall Street buoyed by fears that strong economic data will prompt the Federal Reserve to double rate hikes in a bid to tame inflation.

Shanghai was flat while other major indices declined. US futures edged higher and oil prices rose. Trading ceased as the Christmas and New Year holidays approached.

Japan reported that its core inflation rate excluding non-perishable fresh food rose to 3.7% in November, the highest since 1981, as rising costs of oil and other commodities added to price pressures in the world’s third largest economy.

Although the interest rate has been much lower than in the US and most major European and emerging economies, it increases pressure on the Bank of Japan to adjust its own policy, which has kept interest rates extremely low to spur growth. For Japan, deflation – falling prices – and not inflation, has been the main concern of the last few decades. The recession in the coming months remains the bigger concern, economists say.

“Inflation picked up slightly in November and will peak at around 4% around the turn of the year, but we expect it to fall back below the Bank of Japan’s 2% target by mid-2023,” said Marcel Thieliant, economist by Capital Economics, in a report.

The Fed has already raised interest rates to their highest level in 15 years. It started the year with a record low near zero. Many economists and investors expect a recession to hit the US economy in 2023.

Tokyo’s Nikkei 225 index fell 1% to 26,242.58 and Hong Kong’s Hang Seng fell 0.5% to 19,578.44. The Shanghai Composite Index was flat at 3,054.52 and Australia’s S&P/ASX 200 was down 0.7% at 7,099.70.

In Seoul, the Kospi fell 1.4% to 2,323.09. Stocks also fell in Bangkok, Mumbai and Taiwan.

Good economic data should bode well for markets if a recession looms, but Thursday’s reports suggest the Federal Reserve may need to keep raising interest rates and keeping them high to curb inflation.

The Fed is particularly concerned about a still-strong job market, which is giving more oxygen to inflation, which has eased somewhat in recent months but is still near its highest level in decades. Employers laid off fewer workers than expected last week, according to a report on Thursday. Another report showed that the broader US economy expanded more robustly over the summer than previously thought.

The S&P 500 fell 1.4% on Thursday after falling as much as 2.9% earlier in the day. It closed at 3,822.39. The pullback brings Wall Street’s top health indicator for the year down nearly 20%.

The Dow Jones Industrial Average fell 1% to 33,027.49 and the Nasdaq closed 2.2% lower at 10,476.12. The Russell 2000 Index fell 1.3% to 1,754.09.

The sell-off was broad with all 11 industry sectors in the S&P 500 falling. Technology stocks were the largest detractor from the benchmark index. Chipmaker Nvidia fell 7%.

Trading on Wall Street has been upside down of late as reports paint a mixed picture of the economy.

High-growth technology stocks have suffered some of the worst setbacks of the year because they are considered the most vulnerable to rising interest rates.

Electric vehicle maker Tesla is suffering from rising interest rates and issues unique to itself and its CEO Elon Musk. It plunged 8.9%, bringing its annual loss to around 64%. It’s taking the rare step of offering discounts on its two best-selling models through the end of the year, suggesting demand is slowing.

Concerns about corporate earnings are mounting across all industries grappling with the strain of higher interest rates, still high inflation and rising costs related to payrolls and other expenses. Weaker corporate earnings could further erode support for equities after earnings have rallied for much of 2022.

The housing industry and other sectors of the economy, whose wealth is closely linked to low interest rates, are suffering as a result. But consumer confidence has strengthened, offering hope for the biggest and most important part of the economy: consumer spending.

In other trading on Friday, US benchmark crude rose 79 cents to $78.28 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, it fell 80 cents to $77.49 a barrel.

Brent crude, the price basis for international trade, rose 47 cents to $82.14 a barrel.

The US dollar rose to 132.64 Japanese yen from 132.38 yen. The euro rose to $1.0607 from $1.0597.

AP Business Writers Damian J. Troise, Stan Choe, and Alex Veiga contributed.

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