SINGAPORE — Asian stocks headed for their worst week in three months on Friday as a series of hotter-than-expected inflation prints and hawkish central bank surprises made investors nervous about the economic cost of the control of galloping prices.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.7% and is down 3.6% for the week, its worst since March. The trade was lightened by a public holiday in China. Hong Kong stocks came back from a pause with a 1.4% decline.
The Japanese Nikkei fell 1% as core inflation in Japan hit its fastest pace in more than four decades.
On the heels of sticky UK inflation data, the news sparked a wave of risk aversion, said Wong Kok Hoong, head of equity sales at Maybank in Singapore. The Nikkei was on course to snap a ten-week winning streak with a weekly decline of 2.4%.
Wall Street posted overnight gains, but S&P 500 futures fell 0.4% on Friday.
Overnight, central banks in Britain and Norway hiked 50 basis points. Last week, the US Federal Reserve surprised markets with a hawkish outlook and central banks in Australia and Canada made unexpected hikes.
The Bank of England’s hike to 5%, in the face of persistent inflation and surprisingly high wages, caused only a brief jump in the pound before it fell, while gilt yields fell as investors feared the tightening could lead to economic hardship.
“The tight labor market in the UK, given its labour-intensive service economy, is proving increasingly problematic and illustrates the risk in other advanced economies,” said ANZ economist Henry Russell in a note.
“Although rate and currency movements have been muted, there seems to be a sense that more tightening is brewing in the northern hemisphere,” he said.
The US dollar advanced on Friday and was expecting its strongest weekly performance in a month. The Australian dollar, which is sensitive to commodity prices and Chinese growth, fell 0.5% to $0.6724 and was down more than 2% on the week.
With onshore markets shut, the offshore yuan extended its recent losses and slid to a new seven-month low at 7.2225 to the dollar.
Maybank’s Wong said the market was not accepting promises of a week of stimulus to support China’s stagnant post-pandemic recovery. “The feeling is weak,” he said.
In bond markets, US Treasuries sold off overnight as Fed Chairman Jerome Powell reiterated that further rate hikes were likely. Two-year Treasury yields rose 9 basis points to 4.8% overnight and were flat at 4.7888% in Asia on Friday.
Ten-year Treasury yields rose 7.6 basis points overnight and stood at 3.7849% on Friday. The prospect of higher rates hit gold, which earns no income, and spot prices fell to three-month lows at $1,910 an ounce.
Brent crude futures had their worst week in nearly two months and fell 0.5% to $73.79 a barrel.
Later Friday, PMI surveys are expected in Europe, Britain and the US, and UK retail sales figures are expected to show a shift in the opposite direction.
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