Asian equities mostly fell on Wednesday after a record-breaking rally on Wall Street finally came to an end, with inflation returning to the fore as prices in the United States and China continued to surge.
While markets – particularly in the United States – have chalked up all-time highs in recent days and weeks, traders remain nervous about the constant stream of data showing global inflationary pressures building as supply chains are snarled and demand spikes. In reaction, central banks have turned increasingly hawkish, with some raising interest rates and others paring back vast support measures put in place at the start of the pandemic, which have been key to the rally in world equities for the past 18 months.
On Wednesday, China released a report showing the prices paid at factory gates had jumped 13.5 per cent on-year in October to their highest level in more than two decades owing to soaring energy prices and as supplies were hit by coronavirus lockdowns in parts of the country. The figures also showed a further pick-up in consumer inflation. The readings will cause a headache for leaders as they fight to prevent prices from running out of control but also provide support to the economy as its recovery stutters under pressure from the recent COVID flareups.
Wednesday’s news came a day after the Labour Department said US wholesale prices remained elevated last month and observers said the advances would likely continue this year. The consumer price index is released later on Wednesday.
“Because we haven’t seen inflation for a while, people aren’t used to it,” Drew Matus of MetLife Investment Management told Bloomberg Television. “What we should expect over the next half a year is – as people become more understanding of what the Fed might do – we are going to see more volatility.”
‘Knock-on disruption’
“Asia is on inflation alert, fearing future costs of inputs from goods sourced from the (Chinese) mainland,” said OANDA’s Jeffrey Halley. “To be sure, some risks remain regarding China itself. Its COVID-zero policy means that if cases in the current outbreak spread, to say, port cities, mass closures could result if its previous go-to strategy is anything to go by. That would have a knock-on disruption that would be felt across the globe.”
[China’s] COVID-zero policy means that if cases in the current outbreak spread, to say, port cities, mass closures could result. That would have a knock-on disruption that would be felt across the globe- OANDA’s Jeffrey Halley
Shanghai, Tokyo, Sydney, Seoul, Singapore, Seoul, Mumbai, Wellington, Manila and Jakarta were all in negative territory. However, Hong Kong reversed an early sell-off to end in positive territory thanks to a rally in beaten-down tech firms, while Taipei also edged up.
Investors were also keeping tabs on developments in the China Evergrande saga, with the struggling property giant facing a deadline on Wednesday to pay interest on three bonds worth a total of $148 million. The firm has fulfilled its obligations on two previous notes, and it managed to raise around $144 million last week by slashing its stake in an internet company. However, there remains a lot of concern that the crisis at the company, which is drowning in debts worth more than $300 billion, will spill into the wider economy.
Bitcoin was sitting around $66,450, a day after hitting a new record high of $68,513.