Asian stocks slump, dollar shines as inflation fears flare

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TOKYO (Businesshala) – Inflation fears weighed on Asian stocks and the dollar jumped on Thursday, as overnight data showed US consumer prices rose last month at the fastest pace since 1990, Due to which there has been an increase in the case of accelerating the policy of the Federal Reserve.

FILE PHOTO: TV camera men wait for the market to open in front of a large screen showing stock prices at the Tokyo Stock Exchange in Tokyo, Japan October 2, 2020. Businesshala / Kim Kyung-hoon

The nominal US Treasury yield rose higher, the highest since February on the benchmark 10-year note, while real yields, which take inflation into account, fell to a record low.

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Gold surged to five-month high and bitcoin broke record as investors sought an inflation hedge.

Oil bounced back sharply from nearly seven-year highs after US President Joe Biden said his administration was looking for ways to reduce energy costs.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.85%, down 1.19% from Australia’s benchmark.

Chinese blue chips slipped 0.09%.

Japan’s Nikkei edged out the trend with a gain of 0.24%, supported by the yen’s weakness against a resurgent dollar and US stock futures ticked up slightly.

However overnight the S&P 500 fell 0.82%, its worst day in more than a month. The index marked its first back-to-back decline in over a month, after the index closed at a record peak to start the week.

The dollar index, which gauges the currency against six major peers including the yen and the euro, hit a high of 94.905 on Wednesday, a level not seen since July last year.

The greenback rose 0.13% to 114.04 yen, up from a low of 112.73 at the start of the week.

The US consumer price index rose 6.2% year-on-year, with a broad-based rise in gasoline that indicated inflation could remain uncomfortably high in 2022 amid global supply chains.

Inflationary pressure in the labor market is also mounting, with other data on Wednesday showing that the number of Americans filing claims for unemployment benefits fell to a 20-month low.

While both the White House and the Fed have maintained that prices will fall once supply bottlenecks ease, the central bank reiterated only last week that high inflation is “expected to be temporary” as policymakers urged patience.

“The Fed’s resolution is facing a testing time,” Rodrigo Catril, a senior foreign exchange strategist at National Australia Bank in Sydney, wrote in a client note.

“Supply constraints may be temporary, but an increase in core drivers increases the pressure on the Fed to trigger a monetary policy response.”

The money market now makes the first Fed interest rate hike until July.

The benchmark 10-year Treasury yield rose the most in seven weeks to 1.592 per cent on Wednesday. Treasury markets globally remain closed on Thursday due to a US holiday.

Meanwhile, yields on 10-year Treasury Inflation-Protected Securities (TIPS) fell sharply as low as an unprecedented -1.243% before drifting higher during the session.

Inflation expectations rise, five-year break-even inflation rate rises to record 3.113%

Volatility spread to other markets, with the CBOE Volatility Index, Wall Street’s so-called fear gauge, touching its highest level in nearly a month.

For the first time since mid-June, spot gold was trading at a high of $1,850.

Bitcoin initially rose to a new all-time high of $69,000 and then rallied back below $65,000 in the last trade.

US West Texas Intermediate (WTI) crude rose 25 cents to $81.59 a barrel, but hit an overnight high of $84.97 and a seven-year peak of $85.41 late last month.

Brent crude futures rose 30 cents to $82.94 a barrel, but tumbled on Wednesday from a three-year high of $85.50 and October’s $86.70.

Editing by Lincoln Feast

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