Global Markets Drop on Worries About Fed’s Inflation Battle

Estimated read time 4 min read


By early afternoon in Hong Kong on Monday, futures tied to three major U.S. equity indexes had fallen between 1.1% and 1.9%. That suggested American stocks could come under fresh pressure on Monday, after data showing consumer prices were up 8.6% year-over-year in May fueled a hefty selloff in the previous session. 

Stock indexes in Asia weakened, with Hong Kong’s Hang Seng, Japan’s Nikkei 225 and South Korea’s Kospi Composite all retreating by 2.9% or more. In mainland China, the blue-chip CSI 300 index lost about 1.4%.

In other asset classes, the dollar gained against a range of currencies, as benchmark U.S. bond yields continued to march higher, while bitcoin sank to its lowest levels since late 2020.

Friday’s figures “essentially show that inflation hasn’t peaked yet in the U.S.,” said Tai Hui, chief market strategist for Asia at J.P. Morgan Asset Management in Hong Kong. 

The pullback in U.S. futures raised the prospect that the S&P 500 index could join the Nasdaq Composite in bear-market territory, often defined as a decline of at least 20% from an earlier peak. The S&P 500, which nearly fell into a bear market in May, ended Friday 18.7% below January’s record closing high.

Whether or not a given index has met that technical definition, some market participants say sentiment is already very bearish. 

“This is what you call a bear market where fear is taking place and pushing people out of the market and having people empty up portfolios and capitulate,” said

Todd Morgan,

the chairman of Los Angeles-based Bel Air Investment Advisors. 

Still, Mr. Morgan said developments in the next month or two could help damp inflationary pressures, such as lower gasoline demand after the summer and slowing demand for houses due to rising mortgage rates. 

“China opening up is a big deal, too,” he said, as that would help ease supply-chain constraints. Figures last week showed Chinese exports surged in May as Covid-19 restrictions eased, adding to signs of economic recovery there.

Where in Americans’ household budgets is inflation hitting the hardest? WSJ’s Jon Hilsenrath traces the roots of the rising prices to learn why some sectors have risen so much more than others. Photo Illustration: Laura Kammermann/WSJ

The yield on the benchmark 10-year U.S. Treasury note on Friday reached its highest since November 2018 and rose further in Asian trading Monday. The yield stood at 3.184% by early afternoon Monday in Hong Kong, according to Tradeweb. Bond yields rise as prices fall.

The dollar strengthened broadly, gaining ground in Asia against currencies including the South Korean won, Australian dollar and offshore Chinese yuan. The ICE U.S. Dollar Index added nearly 0.3% to 104.432.

The possibility of an even wider interest-rate differential between the U.S. and Japan pushed the yen down further on Monday. The Japanese currency fell to a new multidecade low, weakening beyond 135 a dollar to trade at its weakest since 1998.

A weak yen typically lifts the profits of Japanese exporters, but shares in exporting companies including electronics and machinery makers were down Monday over concerns that the Fed’s rate increases would cool down the global economy. In afternoon trading in Tokyo,

Toyota Motor Corp.

shares stood 3% lower, while

Sony Group Corp.

declined 4.7%.

“The concern is so big that any expectations for benefits from a weak yen were blown away,” said Masahiro Ichikawa, a strategist at Sumitomo Mitsui DS Asset Management. 

Mr. Ichikawa said the yen’s slide could be arrested if the Fed is forced to raise interest rates more quickly, fueling concerns about the global economic outlook. That in turn could boost traditional haven currencies, including the U.S. dollar, the yen and Swiss franc, he said.  

Stock indexes in Asia weakened on Monday, with Japan’s Nikkei 225 , South Korea’s Kospi Composite and Hong Kong’s Hang Seng all retreating by 2.9% or more.



Photo:

Eugene Hoshiko/Associated Press

Bitcoin, the biggest cryptocurrency, traded at about $25,566, according to CoinDesk—a drop of more than 6.6% from 24 hours earlier.

Megumi Fujikawa contributed to this article.

Write to Dave Sebastian at [email protected] and Quentin Webb at [email protected]

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