Equities dropped across Europe and Asia-Pacific on Thursday as a US inflation scare that rattled Wall Street in the previous session rippled through global stock markets.
Europe’s Stoxx 600 index fell 0.8 per cent in early dealings, while the UK’s FTSE 100 dropped 1.3 per cent.
Japan’s Topix closed 1.5 per cent lower, taking its losses for the week to 4.4 per cent. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks both dropped 1.2 per cent. All of Asia’s other main bourses were also in the red.
The losses came after official data in the US showed inflation rose 4.2 per cent year on year in April, with prices rising at a more rapid pace than economists had forecast.
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.
The prospect of sustained higher inflation can depress equity and debt markets as it lowers the real returns from dividends or fixed-interest payments, sending the prices of stocks and bonds lower.
The yield on US 10-year Treasuries, which moves inversely to its price, climbed during New York trading on Wednesday before stabilising during the early European session at 1.674 per cent, a decline of 0.03 percentage points.
Wednesday’s data also increased speculation that the US Federal Reserve, the world’s most powerful central bank, could accelerate its timeline for reducing its $120bn of bond purchases that have supported financial markets since last March.
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 were hit hard in the US, with the Nasdaq dropping 2.7 per cent. They also weakened in Europe and Asia. Valuations in the sector had soared during the pandemic as locked down households shopped and socialised online, but are now deemed particularly vulnerable to a market correction.
In Hong Kong, Tencent and Alibaba both dropped by more than 2 per cent. Tokyo-listed technology conglomerate SoftBank lost 2.7 per cent despite posting the highest profit on record for a Japanese company a day earlier. The technology sub-index of the Stoxx fell 1 per cent.
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.
The US inflation data came after a period in which global commodity prices have leapt, due to strong demand and tight supply. Investors also view them as a hedge against inflation. Iron ore prices hit a record in dollar terms on Monday.
The commodities boom 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 1.4 per cent to $68.33 per barrel. The Colonial pipeline in the US, which transports fuel 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.
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