Asian stocks dip as investors brace for US inflation data

Asian equity markets fell on Wednesday as investors braced themselves for the latest US inflation data, which are expected to shape the pace of future monetary tightening by the Federal Reserve.

Hong Kong’s Hang Seng index shed as much as 2.2 per cent, while China’s CSI 300 benchmark of Shanghai- and Shenzhen-listed stocks declined up to 1 per cent. Japan’s Topix was down 0.3 per cent.

US consumer price index inflation reached 9.1 per cent in June, the highest level in 40 years, which the central bank has met with back-to-back interest rate increases of 0.75 percentage points.

Economists expect month-on-month headline inflation of 0.2 per cent and a year-on-year rate of 8.7 per cent. Markets are pricing in the possibility of another 0.75 percentage point rise at the Fed’s next policy meeting in September.

In government bond markets, the yield on the two-year US Treasury note, which moves with interest rate expectations, shed 0.02 percentage points to reach 3.27 per cent. The yield on the 10-year note, which moves with inflation and growth expectations, edged 0.01 per cent lower to 2.79 per cent. Yields move inversely to bond prices.

“Market attention has been alternating between slowing growth and too-high inflation,” wrote Citi analysts, adding that a stronger inflation reading “will have the market — and possibly Fed officials — thinking about a 100 [basis point] hike or a 75bp in September followed by another in November”.

Wednesday’s market moves followed the release of Chinese inflation data, which showed consumer prices rose 2.7 per cent year on year in July, less than expected, and 0.5 per cent compared with the previous month.

The tech sector led the falls for equities, with the Hang Seng Tech index dropping as much as 3.1 per cent. The biggest declines were for electric carmakers Nio, Xpeng and Li Auto, which shed as much as 7.2 per cent, 6.6 per cent and 6.9 per cent, respectively.

Oil prices edged lower on Wednesday, with international benchmark Brent crude shedding 0.3 per cent to trade at $96.01 per barrel and US marker West Texas Intermediate down 0.4 per cent at $90.16.