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Inflation fears rattle Asian stocks yet again

Asian stocks are falling Thursday as a bond sell-off continues to rattle markets.

Hong Kong’s Hang Seng Index was last down 2.5%, while Japan’s Nikkei 225 fell 2.3%, accelerating from earlier losses.

The Shanghai Composite dropped 1.9%. South Korea’s Kospi and Australia’s S&P/ASX 200 lost 1.1% and 0.8% respectively.

The declines in Asia Pacific follow similar fallout on Wall Street overnight, where all three major indexes finished lower. Tech and consumer stocks led the way: The tech-heavy Nasdaq Composite was the worst performer, closing down 2.7%.

The 10-year US Treasury bond yield is rising yet again, at 1.48%, or 0.06% higher. Rising yields on the back of expectations for higher interest rates have recently been weighing on markets.

US stock futures all slipped during Asian trading hours Thursday. Dow futures were down 43 points, or 0.1%, while S&P 500 futures slumped 0.3%. Nasdaq futures slipped 0.5%.

Investors are unnerved by inflation worries, having become accustomed to rock-bottom rates that make stocks look attractive by comparison. They fear that if the economy heats up too much, inflation may pick up.

All kinds of experts — from investors and hedge fund managers to current and former banking authorities — have also expressed fears about bubble-like behavior spreading through financial markets. Despite the recent sell-off, Wall Street is still trading near all-time highs.

The rout in Chinese markets came as the country prepares for “Two Sessions,” its biggest political gathering of the year. Premier Li Keqiang is expected to outline major policy goals for the country on Friday.

“Any focus on the [Chinese] authorities leaning against leverage via policy tightening will be closely watched” this week, wrote Stephen Innes, chief global markets strategist at Axi, in a Thursday note.

He pointed out that Beijing’s policy agenda is particularly noteworthy in light of remarks made earlier this week by Guo Shuqing, the Communist Party boss at the People’s Bank of China.

“We are really afraid the bubble for foreign financial assets will burst someday,” Guo told reporters in Beijing earlier this week. He added that broader rallies in US and European markets don’t reflect the underlying economic challenges facing both regions as they try to recover from the brutal pandemic recession.

Investors are also awaiting a speech from Federal Reserve Chairman Jerome Powell.

“Markets will be looking for signals from Mr. Powell regarding his comfort with rising bond yields, inflation, and any signs of potential changes in Fed guidance,” wrote Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, in a Thursday note. He will have to choose his words very carefully.”

— Anneken Tappe contributed to this report.

Article Topic Follows: Money

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