Asian Markets Plunge On Faster Rate Hike and Covid Worries

Arjun Pandit
13 Jun, 2022
New York City

Accelerating U.S. inflation data sparked a wave of selloff in Asian markets in Monday's trading. 

Market indexes opened lower and remained under pressure and continued to fall in the region as indexes in Tokyo, Hong Kong, Mumbai, and Seoul sank near their lows by early afternoon.  

Asian markets were also on the decline after the U.S. inflation data and rate hike worries compounded by the reimposing of stricter restrictions in parts of Shanghai and Beijing. 

Chinese authorities began reimposed mass testing in Beijing and also shut down several schools after coronavirus infections began to rise. 

The Nikkei index plunged 3.01% to 26,987.44, the Hang Seng index declined 3.4% to 21,067.58, and the Kospi index dropped 3.5% to 2,504.51, a 19-month low. 

Market indexes in Frankfurt and Paris dropped 2% and in London declined 1.7%.  

The Sensex index dropped 1,456.74 or 2.7% to 52,846.70 and the Nifty 50 index plunged 2.6% or 427.40 to 15,774.40. 

The Australian markets were closed for a holiday and the New Zealand index dropped 1.9%, the largest one-day decline in four months and fell to its lowest level in two years. 

The U.S. consumer price index in May soared 8,6% after rising at 8.3% in April, according to the latest data released by the U.S. Bureau of Labor Statistics on Friday. 

The May consumer price inflation rose at the fastest pace since December 1981. 

The annual price increases have been accelerating since the lifting of pandemic restrictions as businesses struggle with supply chain issues and rising costs of commodities, food, and energy. 

On a monthly basis, food prices rose 1.2%, energy prices surged 3.9%, and shelter prices rose 0.6%. 

On a yearly basis, food prices surged 10.1%, energy prices soared 34.6%, and shelter cost rose 5.5%. 

The faster than expected inflation dashed hopes of peaking inflation and raised expectations that the interest rates may be raised higher-than-expected 50 basis points after a two-day meeting on Wednesday. 

The Federal Reserve has signaled a 50-basis-points interest rate increase at its next meeting this week and in late July. 

Markets are looking ahead interest rate decisions from several central banks this week. 

The rate decisions are expected from the U..S. Federal Reserve and the Banco Central Do Brasil on Wednesday, from the Bank of England on Thursday, and from the Bank of Japan and Swiss National Bank on Friday. 

The yen extended its year-long decline and fell to 135.20  against one dollar before recovering to close at 134.60 as the rate gap widens between the yen and the U.S. dollar.  

The rupee edged lower to 77.81 on the rising worries that higher U.S. interest rates may accelerate selling by international investors. 

The Japanese government 10-year bonds yield rose to 0.255%, a six-year high and above the cap set by the central bank, ahead of the interest rate decision by the Bank of Japan on Friday. 

The business survey index of large businesses declined to -9.9 in the quarter to June compared to -7.6 in the three-month period to March.   

The business sentiment among smaller companies improved but remained negative at -2.1 from -9.6 in the previous quarter. 

The joint survey by the Finance Ministry and the Cabinet Office showed negative sentiment deepened among businesses after the Ukraine war dragged on and China lockdowns continued. 

The sentiment in the automobile industry fell to -25.4 on the persistent global supply chain worries.