by Yuri Kageyama
TOKYO ( Associated Press) – Asian stocks fell on Tuesday after Wall Street plunged into a bear market, indicating that major US benchmarks and individual stocks have fallen 20% or more for a sustained period of time from recent highs.
Benchmarks fell in Japan, Australia, South Korea and China. The continued decline of the Japanese yen against the dollar stopped.
At the center of the sell-off was the US Federal Reserve, which is scrambling to bring inflation under control. Its main method is to raise interest rates, a blunt tool that can slow down the economy too much and risk a recession if used too aggressively.
Some economists are predicting that the Fed could raise its key rate by three-quarters of a percent on Wednesday. This is three times the normal amount and the Fed has not done so since 1994.
“Another day to digest the recent US inflation data, and the June FOMC meeting, and another day closer to global markets, we’re demonstrating well here in Asia that they don’t like where the global economy is. It just sits there,” Robert Cornell, regional head of Asia-Pacific research at ING, said in a report.
Japan’s Nikkei 225 closed down 1.8% at 26,496.91. Australia’s S&P/ASX 200 fell 4.3% to 6,634.00 after reopening after the holiday on Monday. South Korea’s Kospi ended 1.0% lower at 2,479.83. Hong Kong’s Hang Seng fell 0.4% to 20,990.98, while the Shanghai Composite was down 1.2% at 3,217.72.
Adding to concerns about the fragile Japanese economy, the yen recently slipped to 135, the lowest level against the US dollar since 1998. The US dollar rose from 134.46 yen to 134.62 yen, as the yen’s weakness was somewhat eased by the Bank of Japan. Government Haruhiko Kuroda’s comments expressed concern about its collapse.
Euro price is $1.0426, up from $1.0409.
“Against this background, equities in Asia are unlikely to survive the pain,” Tan Boon Heng of Mizuho Bank in Singapore said in a commentary.
On Wall Street, the S&P 500 index fell 3.9% to 3,749.63. It is down 21.8% from its record set earlier this year and is now in a bear market. On Monday, the Dow closed down 876.05, or 2.8%, at 30,516.74 after falling more than 1,000 points. The Nasdaq Composite fell 4.7% to 10,809.23.
Friday’s drop in trading was the first opportunity for investors after the weekend to reflect the news that inflation is getting worse, not better.
With the Fed pinned to be more aggressive, prices for everything from bonds to bitcoin, from New York to New Zealand, fell around the world. Some of the sharpest drops hit those that were the big winners of the easy low-rate era, like high-growth technology stocks and other former darlings of investors. Tesla dropped 7.1% and Amazon 5.5%. Gamestop dropped 8.4%.
“The best thing people can do is not panic and not sell from the bottom,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research. And we’re probably not at the bottom. ,
On top of some discouraging signs about the economy and corporate profits, markets are set for higher-than-usual gains, including record-low initial readings on consumer sentiment from higher gasoline prices.
The economy as a whole is still on hold, but the danger is that the job market and other factors are so hot that they will add to higher inflation.
Wall Street’s grim realization that inflation is accelerating, not peaking, has sent US bond yields to their highest level in more than a decade. The two-year Treasury yield rose to 3.36% from 3.06% late Friday, marking its second straight big move. According to Tradeweb, it previously touched its highest level since 2007.
The 10-year yield rose from 3.15% to 3.37%, and the higher level would make mortgages and many other types of loans more expensive. It has touched its highest level since 2011.
Higher yields mean that prices for bonds are falling. This happens rarely and is a painful hit for older and more conservative investors who rely on them as a safe part of their nest egg.
Some of the biggest hits came for cryptocurrencies, which surged at the start of the pandemic as ultralow rates encouraged some investors to pile on the riskiest investments. According to Coindesk, bitcoin is down more than 14% from the day before and is down below $23,400. It is back where it was at the end of 2020, down from a peak of $68,990 late last year.
In energy trading, benchmark US crude fell 22 cents to $120.71 a barrel in electronic trading on the New York Mercantile Exchange. It rose 26 cents to $120.93 on Monday.
Internationally, Brent crude slipped 29 cents to $121.98 a barrel.
Associated Press Business Writer Stan Cho contributed.